RETURN DATE: AUGUST 14, 2007 DOCKET NO. : RICHARD BLUMENTHAL SUPERIOR COURT ATTORNEY GENERAL : Plaintiff JUDICIAL DISTRICT OF HARTFORD ve HIGHVILLE MUSTARD SEED DEVELOPMENT CORPORATION, INC. Defendant 2 JULY 12, 2007 VERIFIED COMPLAINT Hee ‘This action is brought by Richard Blumenthal, the Attorney General of the State of Connecticut (the “Attorney General”), pursuant to Conn. Gen. Stat. §§ 33-1038 and 33- 1187(@)(4) 10 stop the unnecessary revocation of the charter for the Highville Mustard Seed Charter School (the “Schoo!”). The corporate entity that rms the School, the Highville Mustard Seed Development Corporation, Ine, (“Highville Development Corporation”), has perpetuated a consistent course of conduct that (I) is destructive to the ends and purposes of its grant to operate ‘a Charter School in the State of Connecticut, (2) is in contlict with and does injury to the public’s interest in the establishment of Charter Schools in the State of Connecticut, and (3) is unauthorized. The imminent and irreparable result of this conduct will be the revocation of the charter to maintain the School’s existence. ‘This lawsuit seeks to avoid this unfortunate result through its requests for appropriate injunctive relief and the appointment of a receiver or custodian pendente lite.COUNT ONE, CONN, GEN. STAT. § 33-1187(a)(4) (QUO WARRANTO) 2, The Plaintiff'is Richard Blumenthal, Attomey Generel of the Stete of ‘Connecticut, who is authorized by Conn. Gen. Stat. § 33-1 187(a)4) to institute proceedings in the nature of quo warranto to dissolve a Connecticut nonstcck corporation. 3, tall times relevant herein, the Defendant, Highville Development Corporation, ‘was a Connecticut nonstock corporation, incorporated in July 1997 pursuant to the Nonstock Corporation Act, Conn. Gen. Stat, §§ 33-1000 ¢t sea, and maintained an office in Hamden, Connecticut, 4. Onor about March 4, 1998, the Connecticut Department of Education (“DOE”) ‘granted a charter to the Highville Development Corporation to operate a Charter School in the Hamden/New Haven area for pre-kindergarten through eighth grade, On May 11, 1998, the Highville Development Corporation amended its Certficete of Incorporation to inchude the following provision: Consistent with the exclusively charitable purposes described in Section ‘501(¢)() of the Code or any other applicable federal state of local law pertaining to the Corporation’s tax exempt status, to operate an educational facility known as a Charter School and orgenized under the laws of the State of Connecticut 5. The Schoo! opened in September 1998 at 130 Leeder Hill Drive in Hamden, Connecticut, and hes been located there ever since, Enrollment for the 2006-2007 schoo! year ‘was approximately 300 students,6. Atall times relevant to this Complaint, the Highville Development Corporation’ Internal Revenue Service Form 990s (the informational retum required by the Internal Revenue Service) from 1998 through 2005 have listed the operation of the School as the primary activity of the Highville Development Corporation and have identified State Charter School funds as at least 90% of the Highville Development Corporation’s income. 7. On September 13, 2005, the DOE ~ Office of Internal Audit (“OIA”) reccived a request from the DOE Charter School Program Manager to initiete an investigation into allegations of financial irregularities and misuse of State Cherter School funds at the Highville Development Corporation in connection with the School, 8. In addition, the Attomey General's Office and the Auditors of Public Accounts received complaints filed pursuant to Conn, Gen. Stat. § 4-61dd, also known as the “whistleblower law,” that alleged identical concerns about financial irregularities, mismanagement, and misuse of State Charter School funds at the Highville Development Corporation in connection with the School. joint investigation of these complaints was commenced by the DOE-OIA, the Attomey General's Office and the Auditors of Public Accounts. 9. On Mareh 15, 2007, the DOR-OIA, the Attormey General and the Auditors of Public Accounts issued a 115 pege joint report of their findings and recommendations (the “Report”) in connection with their investigation of the Highville Development Corporation and its misuse of State Charter School funds. The Report disclosed a patter of financial abuses and ‘management imegularitits at the Highville Development Corporation thet centered around the‘School's Executive Director, Lyndon Pitter (“Pitter”), and his former wife, Nadine Pitter. For example: &. Pitter made $78,539 in questionable charges, including charges for ‘Armani suits, cashmere scarves, silk pajamas, Inggage, a down payment on a car, and toys and ‘games from FAO Schwartz to the School’s credit cards in 1999; b. _ Pitter’s former wife, Nadine Pitter, the School’s Associate Director, was paid her full salary during the 2003-2004 school year while attending college—during school work time—for a nursing degree; ©. Pitter received $57,539 in salary advances between August 2001 end September 2004 and repaid only $23,880; 4, Pitter charged numerous questionable travel expenses to the School including two round trip airline tickets from Minneapolis to Hartford for his ex-wife's husband, who had no connection to the School; © Pitter submitted falsified college degrees, including a bachelor's degree diploma and a master’s degree diploma, to the DOE, the Attomey General's Office and the Auditors of Public Accounts; £ __Pitter's compensation as Exceutive Director ($120,782) and Nadine Pitter’s compensation ($69,332) as the School’s Associate Director appears to be well above the compensation for comparable positions in public education and similar non-profit organizations, especially considering their lack of relevant educational credentials and related experience.10, The Highville Development Corporation, through its Board of Directors (Highville Board”), allowed the above conduct and has not taken effective action to reeover the outstanding State Charter School funds owed to the School by Lyndon Pitter and Nadine Pitter. Il. On March 20, 2007, following the issuance of the Report, DOB placed the School on probation pursuant to Conn. Gen. Stat. § 10-66bb(h). [See Exhibit 1] 12, _ In the Notice of Probation, DOE required that the School file a Corrective Action Plan with the DOB that provided for the following: (1) Neither Lyndon Pitter nor Nadine Pitter may be employed or work at the School; (2) the Highville Development Corporation mist arrange to repay the DOE $60,791, which represented the balance of State Charter School funds owed by Lyndon Pitter; and, (3) Highville Development Corporation must also address each issue listed in Attachment A of the Notice of Probation, having to do with financial controls, oversight responsibilities, and governance improvements. [See Exhibit 1, Attachmient A] 13, Following a meeting with the Highville Development Corporation's Board and its attorney, Stephen Sedor, Esq., on April 2, 2007, to discuss the Notice of Probation, DOE agreed that a separate nonprofit, nonstock corporation (the “New Corporation”) could be incorporated to ‘oversee and operate the School in lieu of the Highville Development Corporation. [See Exhibit 4y 14, Pursuant to this modified Corrective Action Plan, the following provisions, among others, were egreed to by the Highville Development Corporation so that the School’s charter would not be revoked and the School could continue in operation:a. the Board of Directors of the New Corporation (the “New Board’) would oversee the operations of the School and would be financially independent and completely separate from the Highville Development Corporation; b. the Highville Development Corporation and the Highville Board would have no interest or presence in the New Corporation and would enable the School to continue to operate under the New Corporations and ¢. the Highville Development Corporation would sublease the School premises to the New Corporation so the School could continue to operate from that location. 15. Within two months of the issuance of the Notice of Probation, the DOE became aware of two additional, significant issues at the Highville Development Corporation: a. Between October 2006 and April of 2007, the Highville Development Corporation made payments to Pitter or on his behalf, in addition to his salary, in the total amount of $153,707.88, including over $50,000 in payments made after the Highville Development Corporation received the Notice of Probation; and b. ‘The Highville Development Corporation was using teachers at the School, ‘who were paid using State Charter School funds, to teach at the Global Kids Academy. The Global Kids Academy is a tuition based pre-Kindergarten program located at the same site as the Sctool but is not part of the Schoo!, and should not be funded by the State Cherter School funds, 16, In sesponse to these discoveries, DOE, pursuant to authority granted by Conn, Gen, Stat, 10-66bb(h), demanded that, as part of the Corrective Action Plan, the Highville Development Corporation investigate the circumstances surrouuiding these additional paymentsfo Lyndon Pitter, submit a plan showing how the Highville Development Corpotation would recover any unauthorized payments to Lyndon Pitter, investigate the commingling of School funds with the Global Kids Academy and identify how much would be due back to the School. [See Exhibit 3] 17, Inaédition, DOE further ordered that Lyndon Pitter could not provide any services to the New Corporation or New Board or to the School, and that no State Charter School funds could pass through the Highville Development Corporation for the sublease of the premises, [See Exhibit 3] 18. By letter fo counsel for the Highville Development Corporation, dated Tune 5, 2007, DOE required two additional items as part of the Corrective Action Plan, First, the Highville Development Corporation was to provide a process for the appointment of the New Board to the New Corporation School, but the only members of the board of the Highville Development Corporation that could participate in the selection of the New Board were John Gesmonde, Esq., and Wesley Daunis, a teacher at the School. Second, the Highville Development Corporation would need to make assurances that New Board would inherit a satisfactory financial system from the Highville Development Corporation, and that the School ‘would be able to operate while managing significant liabilities and debt that would be transferred ‘rom the Highville Development Corporation to the New Corporation. [See Exhibit 4] 19. On July 3, 2007, the New Corporation filed its Certificate of Incorporation with the Connecticut Secretary of the State,20, Since the New Corporation was incorporated on July 3, 2007, a New Board, selected by a process wholly independent of and separate from the Highville Board, has elected officers, adopied bylaws, and adopted policies applicable to the School. The New Board is ready to oversee the operation of the School. 21, The Defendant, Highville Development Corporation, has abused and misused its corporate status in that it has engaged in activities and conduct that are in derogation of and inconsistent with its Certificate of Incorporation; namely, as the corporate body overseeing and running the School, it has failed to adequately maintain the School and take the steps to ensure the continued existence of the School pursuant to the Corrective Action Plan. This conduct includes, but is not limited to, the following set forth below. 22, Onor about August 22, 2006, the Hamden Fire Marshal issued two letters detailing the steps the Highville Development Corporation would need to take to bring the School’s premises into compliance. To date, the Highville Development Corporation has not taken any steps to create a walled-off corridor between the school rooms, which will take significant resources, both of time and money, to accomplish. This failure to act places both the existence of the School and the safety ofits students and staff in jeopardy. [See Exhibit 5] 23. On July 9, 2007, the final deadline for the Highville Development Corporation’s Action Plan, the DOE received a 33 page submission by the implementation of the Correcti Highville Development Corporation (the “July 9 Submission”). [See Exhibit 6] 24, The July 9 Submission does not constitute an acceptable implementation of Corrective Action Plan agreed fo by the DOB; instead, it reflects the Highville DevelopmentCorporation's apparent effort to hinder and sabotage the continued existence of the School. Despite clear and unequivocal ditectives from the DOE to the contrary, the Highville Development Corporation coniinues fo attempt to exert control over the New Board and the New Corporation and to dictate the terms of the operation of the School going forward. By its actions, the Highville Development Corporation is saying that if it cannot run the School, then no one will, These actions are an abuse of its corporate cherter, and threaten the continued existence of the School, 25. The July 9 Submission reveals the following deficiencies in the Highville Development Corporation’s implementation of the Comective Action Plan: a. Contrary to the DOB’s requirement that the New Board be chosen by DOE approved Selection Committee, the Highville Development Corporation seeks fo direct the actions of the New Corporation by aceepting only two of the seven members of the New Board. ‘who were, in fact, chosen by a DOE approved Selection Committee; b. The Highville Board bas purportedly entered into contracts with two individuals to serve as Co-Chancellors of the School through 2009, without the consent or approval of the New Corporation; ©. The Highville Board hes attempted to foist its misspending onto the New Board and the New Corporation (1) by requiring the New Board to absorb all of the expenses and liabilities of the Old Board, including the unaudited expenses, which expenses and lisbilities have not been disclosed to the DOE, and (2) by further attempting to force the New Board towaive any elaims that the New Boatd may have against the Highville Development Corporation for improper expenditures; 4 The Highville Board has failed to effect a meaningful transfer of the property and assets to the New Board, and it has failed to provide a financial accounting of the assets and liabilities of the School; ©. The Highville Board has failed to effect a meaningful transfer or sublease of the Schoo! promises to the New Board, in that the July 9 Submission does not contain a proposed sublease nor cleatly articulate the ellocation of space and rent payments between the Highville Board and the New Board which will run the School, nor disclose other key terms; f. The Highville Board has failed to provide a budget or a plan as to how the School vill operate in ight of the significant debt DOB anticipates will be transferred by the Highville Board to the New Board; g. The Highville Board has failed to transfer possession of student records, personnel records and financial records to the New Bosrd that are necessary for the operation of the School; b. The Highville Board has failed to provide a plan for the repayment to the DOE of the $60,791 of State funds that Lyndon Pitter misappropriated for his own personel benefit, as detailed in the Report; i. The Highville Board hes failed to provide @ report on the payments to Lyndon Pitter between October 2006 and April 2007; and 10i, The Highville Board has failed to provide a report on the commingling of funds and resources of the School with those of the Global Kids Academy. 26, ‘The course of conduct of the Defendant, Highville Development Corporation, as set forth herein, is contrary to the public interest because as a direct result of that conduct, an established Charter School with approximately 300 students will close, thereby disrupting their education and eliminating the educational altemative chosen by their parents end guardians. The grant of a charter to a corporation to run a Charter School was intended by the legislature to create options for Connecticut students. The continued course of conduct by the Highville Development Corporation, if not remedied, will eliminate that option. The Highville Development Corporation's failure to implement the Corrective Action Plan constitutes grounds for the revocation ofits State charter, The Highville Development Corporation's conduct is therefore inconsistent and incompatible with the public interest. 27, The Highville Development Corporation has further abused and misused its corporate status and acted contrary to the public interest in that it has violated various statutes of the State of Connecticut, Said violations of law include: & violating the laws and regulations governing charter schools; b. violating the Conn, Gen, Stat, § 21a-1908(3) by engaging in financial transactions which are not related to the accomplishment of ‘Highville Development Corporation’s purposes, or which jeopardize or interfere with its ability to accomplish its charitable purposes; uc. violating the Connecticut Solicitation of Charitable Funds Act, Conn. Gen, Stat. §21g-175a et seq., by soliciting charitable funds in Connecticut without first cither registering pursuant to Conn. Gen. Stat. § 21a-190b or claiming and substantiating an exemption from registration pursvant to Conn. Gen. Stat, § 21-1904. 28, — Highville Development Corporation's activities and conduct, as set out in this first Count, merit the dissolution of this Defendant's corporate status and the judicial winding up of its affairs pursuant to Conn. Gen, Stat, § 33-1187 et se. 12| | COUNT TWO. CONN. GEN. STAT. § 33-1038(b)(3), (ULTRA VIRES ACTS) 1-27. Paragraphs One through Twenty-seven of Count One are hereby incorporated as paragraphs One through Twenty-seven of Count Two as if more fully set fosth herein. 28, The course of conduct of the Defendant, Highville Development Corporation, as set forth herein, is unauthorized in that iti in violation of DOE’s directives, is in derogation of and inconsistent with its Certificate of Incorporation, is contrary to the public interest, ond is in violation of State statutes, 29. Highville Development Corporation’s activities and conduct, as set out in this first Count, merit the entry of injunctive relief against the Highville Development Corporation, pursuant to Conn, Gen. Stat. § 33-1038(b)(3). 3DEMAND FOR RELIEF WHEREFORE, the Attomey General prays for the following relief: 1, An order dissolving the corporate status of the Highville Development Corporation, pursuant to Conn, Gen, Stat. § 33-1187(a)(4)., 2, Am order naming a reosiver or custodian pendente lite to manage the affairs of the Highville Development Corporation in accordance with its puzposes and to have the powers set forth in Connecticut General Statutes § 33-1189(¢)(1), which include, but are not limited to: @, assigning all rights and liabilities ofthe lease for the School to the New Corporation; b. assigning all the tangible assets of Highville Development Corporation to the New Corporation, including but not limited to, all desks, chairs, computer equipment, electronic equipment, projection equipment, chalkboards, books, and any and ell schoo! supplies, subject to eny security interest held by any third party; and ©. transferring possession of all student and personnel records maintained in connection with the running of the School to the New Corporation. 4. assigning such liabilities of Highville Development Corporation to the ‘New Corporation as the Receiver or custodian pendent lite deems legitimately incurted, reasonable and necessary; 3. Anorder enjoining the Highville Development Corporation from any and all acts that are inconsistent with the requirements set forth by the DOE or the DOB Commissioner; more specifically: 142 passing any corporate resolution that seeks to control who is a member of the board of directors of the New Corporation; b. passing any corporate resolution that secks to appoint any person to any position within the School or the New Corporation; © passing any corporate resolution that secks to control and direct payment of the New Corporation’s funds; d. withholding the financial accounting of independent financial accountant John J. Mooney, CPA, performed in June 2007 in connection with the Corrective Action Plan; and © distributing any funds to Lyndon Pitter or any family members of Lyndon Pitter 4. An order requiring the Highville Development Corporation to approve and implement the following corporate resolutions, all of which are consistent with the DOE's and DOE Commissioner's directives: 8 assigning all rights and liabilities of the lease for the School to the New Corporation; b. assigning all the tangible assets of Highville Development Corporation to the New Corporation, including but not limited to, all desks, chairs, computer equipment, electronic equipment, projection equipment, chalkboards, books, and any and all school supplies, subject to any security interest held by any third party; 15transferring possession of all student and personnel records maintained in ‘connection with the running of the School to the New Corporation; end . producing the financial accounting of independent financial accountant John J. Mooney, CPA, performed in June 2007 in conection with the proposed Corrective Action Plan, €, assigning such liabilities of Highville Development Corporation to the ‘New Corporation as the receiver or custodian pendente lite deems legitimately incurred, reasonable and necessary; 5. Such other relief as the Court deems necessary. 16BY: Mp RY ‘BLUMEN’ ATTORNEY GENERAL Juris No. 403804 55 Elm Street P.O. Box 120 Hartford, CT 06141-0120 Tel: (860) 808-5318 Fax: (860) 808-5387 v