PIERRE — A circuit court correctly dismissed a case claiming embezzlement and mismanagement prevented students from receiving GEAR UP benefits, but did so for the wrong reason, the South Dakota Supreme Court ruled this week.
In an opinion issued Wednesday, Chief Justice David Gilbertson wrote that Judge Bruce Anderson should have dismissed Alyssa Black Bear and Kelsey Walking Eagle-Espinosa's case because they didn't have standing to bring their claims, not because of a federal preemption.
Unless the students' case is taken on by the U.S. judicial system, the South Dakota Supreme Court's unanimous decision closes the last case related to an embezzlement scandal that first gained public attention nearly five years ago.
Beginning in 2011, the South Dakota Department of Education began receiving funding through the Gaining Early Awareness and Readiness for Undergraduate Programs (GEAR UP) grant, which was distributed by the U.S. Department of Education with the goal of providing services to low-income Native American students. The SDDOE contracted with Mid-Central Educational Cooperative (MCEC) to administer the program in the state, and MCEC entered an agreement allowing the American Indian Institute for Innovation (AIII) to assist with implementing the program.
Sept. 17 of this year will mark five years since MCEC business manager Scott Westerhuis shot and killed his wife, assistant business manager Nicole Westerhuis, and their four children before setting their Platte house ablaze and turning the gun on himself.
Hours before, MCEC learned from the SDDOE that financial problems and accounting errors had lost the cooperative's $4.3 million GEAR UP federal contract. Investigation later found Scott Westerhuis had embezzled more than $1 million from MCEC and had nearly $145,000 in unpaid debt at the time of his death.
Black Bear and Walking Eagle-Espinosa, who attended Todd County High School and St. Francis Indian School, respectively — both schools which were designated as recipients of GEAR UP benefits — are now college students. In May 2016, they sued the Westerhuises' estates, MCEC and AIII and their directors with claims that embezzlement of MCEC funds prevented them from getting the benefits they should have.
The defendants twice moved for summary judgment and were denied in 2017 and 2018. Anderson granted a third motion for summary judgment, which argued there was no evidence GEAR UP funds were among those misappropriated, that their claims are preempted by federal law and that they didn't have standing in the case. After hearing oral argument in October, the Supreme Court now opines that he should have done so based on that third argument, not the second.
Black Bear and Walking Eagle-Espinosa claimed to be third-party beneficiaries of contracts MCEC held with SDDOE and AIII. Gilbertson wrote that while they had submitted affidavits and facts showing GEAR UP funds may have been improperly handled by defendants and they hadn't gotten the GEAR UP program benefits they were due, they hadn't shown enough evidence to prove they were legally protected third parties or that the contracts allowed students or the public to sue for damages.
"Here, a review of the agreements at issue shows that they were entered into for the express benefit of the SDDOE to enable the State to implement the GEAR UP program," Gilbertson wrote. " ... Any benefit the students may have received from the GEAR UP contracts was incidental to the primary purpose of the contracts."
According to the Supreme Court opinion, claims of theft or conversion of GEAR UP funds couldn't proceed because the program identified academic objectives, rather than directly providing funds to students, giving them no legally-protected interest in funding for GEAR UP. The students also hadn't proven that the alleged mismanagement of funds caused a loss of educational services or that having their appeal granted would make up for the past loss of those services.
Though the Supreme Court's decision states Anderson incorrectly found Walking Eagle-Espinosa and Black Bear had standing for their claims, the case will not be remanded to the circuit court, as the case's dismissal for one reason had the same effect as if it had been dismissed for another.
In the years since the Westerhuis murder-suicide first put GEAR UP and related organizations in the public eye, cases against three people involved with the program have been filed and concluded, with one person convicted of an offense and none serving jail or prison time.
A jury found former MCEC assistant business manager Stephanie Hubers not guilty of theft charges in June 2018, and AIII CEO Stacy Phelps was acquitted of charges relating to backdating contracts that October. In September 2018, MCEC Director Dan Guericke pleaded guilty to one count of falsifying evidence, and he was granted a suspended imposition of sentence two months later.