On October 13, 2026, nine days after filing its chapter 11 petition, Highlands Community Charter and Technical Schools sued the Twin Rivers Unified School District Board of Trustees and the California State Board of Education in the United States Bankruptcy Court for the Eastern District of California, Sacramento Division. The clerk entered the complaint on the main case docket on October 14 as docket no. 94 and opened Adversary Proceeding No. 26-02134.

The complaint has two counts. Count I asks for a declaratory judgment that the automatic stay under Section 362(a) already applies to the defendants’ pending appeal of a charter revocation decision, which the complaint defines as the “Revocation Appeal.” Count II asks, in the alternative, for an injunction under Section 105(a) barring prosecution of that appeal while the chapter 11 case is pending.

The requested relief has a defined limit. A separate state proceeding over roughly $186.5 million in audit determinations, defined in the complaint as the “Audit Appeal,” is excluded from the requested relief because the California Department of Finance told the Office of Administrative Hearings on October 6, 2026 that it does not object to a stay of that matter (¶¶ 20, 22, 25).

Source: Highlands Community Charter and Technical Schools, No. 26-25868, Dkt. 94, caption, Preliminary Statement and ¶¶ 25, 31; main case docket text.

The debtor is a 501(c)(3) non-profit corporation that owns and operates two charter schools serving adult students in Sacramento County: Highlands Community Charter School (“HCCS”) and California Innovative Career Academy (“CICA”) (¶ 2). The Twin Rivers Unified School District issued the schools’ current charters, first in August 2014, and their current terms expire on June 30, 2027 (¶ 5).

According to the complaint, the schools serve approximately 2,000 students aged 22 and older, offering a path to a high school diploma, in-person English language instruction and career and technology certification programs (¶¶ 6, 33). The preliminary statement puts the stakes at over one hundred jobs and the education of over 2,000 current students, whom it describes as mid-semester. The complaint also describes an exclusive partnership with the Sacramento Employment and Training Agency (“SETA”), under which all enrolled students must also enroll in SETA’s workforce development programs; it cites SETA’s report that 63% of students in its Workforce Investment Opportunity Act program were employed in the second quarter after exit (¶ 12).

The student population described in the complaint includes refugees from Afghanistan resettled in the Sacramento area (¶¶ 9, 34) and students for whom enrollment in an educational program is a condition of receiving public assistance for housing or other services (¶ 10). The complaint alleges that if the schools closed mid-year, most students would have no immediate replacement available (¶ 35).

Source: Research Suite case record, No. 26-25868; Dkt. 94 ¶¶ 2, 5. Asset, revenue and employee figures are Research Suite case data, not figures stated in the complaint.

The complaint lays out the layers of public oversight that apply to the schools before turning to the dispute. Twin Rivers is the first level of oversight as the authorizing entity, and the complaint states that the schools compensate Twin Rivers for that compliance oversight (¶ 11). Over the years, the complaint alleges, the schools paid Twin Rivers more than $14 million in oversight fees (¶ 15).

Source: Dkt. 94 ¶¶ 4, 11, 13.

Per the complaint, the independent auditor’s reports for fiscal years 2019-2020 through 2023-2024 were submitted to and certified by the State Controller’s office (¶ 14). Those reports found the schools compliant with charter school requirements covering attendance, mode of instruction, funding determinations, classroom-based instructional minutes and the Charter School Facility Grant Program. The only contrary finding the complaint identifies concerned inaccurate reporting of free and reduced lunch eligibility in fiscal year 2022-2023, which the auditor attributed to students turning in documentation late.

In June 2025, the California Office of the State Auditor issued Report 2024-106 (¶ 16). The complaint characterizes the report as seeking to impose a retroactive $180 million penalty based on an interpretation of K-12 attendance rules that, in the debtor’s view, were never meant for adult learners. It further alleges that the auditor has withheld its internal methodology and working papers (¶ 18), and that the report also faulted Twin Rivers, the Sacramento County Office of Education and the California Department of Education (“CDE”) for failing to monitor the schools (¶ 19).

On June 30, 2025, which the complaint places five days after the report’s release, CDE sent audit determination letters to both schools asserting repayment entitlements based on the report (¶ 20). The letters gave the schools two options: pay through a payment plan or appeal to EAAP (¶ 21). The schools appealed, and those appeals proceed as EAAP Case Nos. 25-42 and 25-36 (¶ 22).

Source: Dkt. 94 ¶ 20. Percentages are Research Suite calculations from the stated amounts.

The complaint treats the two state proceedings differently, and the distinction defines the adversary proceeding’s reach. The Audit Appeal concerns whether the schools must repay the amounts in the CDE letters (¶ 24). Its parties are the State Controller and the Department of Finance (“DOF”); the complaint notes that neither the State Auditor nor CDE is a party (¶ 23). A merits hearing before an Administrative Law Judge had been scheduled to begin on October 19, 2026.

DOF has stated it does not object to a stay of that hearing pending resolution of the bankruptcy case, while reserving the right to seek stay relief from the bankruptcy court. The debtor, in turn, reserves the right to oppose any such motion on the ground that no cause exists under Section 362(d) (¶ 25). The Revocation Appeal is on a different track. The preliminary statement says the debtor filed the adversary proceeding only because the defendants seek to prosecute that appeal despite the bankruptcy filing.

Source: Dkt. 94 Preliminary Statement and ¶¶ 20, 22–25, 28–29, 31.

The revocation dispute began alongside the audit. In June 2025, the Twin Rivers Unified School District Board (the “District Board”) issued a Notice of Violation alleging breaches of the charters (¶ 26). The complaint alleges that remedial steps the schools took in response to the audit report allowed them to refute, address or cure every asserted violation. From there, the matter moved through the District Board, the County Board and two state-level recommendations, and it now awaits the State Board.

Source: Dkt. 94 ¶¶ 2, 5, 16, 26–31. Events are as alleged in the complaint.

The complaint alleges that the working relationship between the debtor and Twin Rivers has become untenable, and that Twin Rivers, as issuer of the charters, retains the ability to seek revocation on various grounds regardless of how the Revocation Appeal is resolved (¶ 29). If the State Board agrees with the ACCS recommendation, the debtor alleges, it could immediately lose its charters and funding, and the schools would face closure on or shortly after November 12, 2026 (¶ 31).

Count I rests on the premise that the stay arose automatically on the petition date and already reaches the Revocation Appeal. The complaint asserts that Section 105(a) gives the court discretionary power to issue declaratory judgments interpreting the scope of Section 362(a) (¶ 41), and it quotes three subsections of the stay provision (¶ 42).

Source: Dkt. 94 ¶¶ 41–43, 46; Prayer for Relief ¶¶ 1–2.

The complaint pleads that continued prosecution would require the debtor, which it describes as having limited administrative and financial resources, to prepare for and participate in time-consuming hearings, including the November 12 State Board meeting (¶ 44). It also asserts that because the debtor cured or refuted every violation in the Notice of Violation, as it alleges Twin Rivers staff and counsel found and SCBOE confirmed, the Revocation Appeal does not serve a pressing public policy or regulatory purpose to prevent ongoing harm (¶ 45).

Four declarations are requested (¶ 46): that the stay applies because the debtor is a named party; that it applies because the appeal implicates estate property, including the charters; that any acts to continue prosecution, hearings and appeals in the Revocation Appeal violate the stay and are void; and that the stay applies to any future proceedings the defendants may seek to prosecute against the debtor during the case.

Count II is pleaded in the alternative. The complaint asserts that Section 105(a) includes the power to enjoin third-party actions that might impede reorganization, and that the debtor satisfies the elements for injunctive relief under Section 105(a) and Bankruptcy Rule 7065 (¶¶ 49–50).

Source: Dkt. 94 ¶¶ 49–55.

The complaint cites three authorities for the Section 105(a) standard. The table lists them as they appear in the filing.

Source: Dkt. 94 ¶¶ 49, 51.

The requested preliminary injunction would enjoin the defendants, their agents and employees from continuing, enforcing or adjudicating the Revocation Appeal against the debtor during the pendency of the case or until further order of the court (¶ 56).

The Prayer for Relief contains seven requests. The first four track the declarations in Count I, the fifth is the alternative injunction under Count II, and the last two are standard requests for costs and further relief.

Source: Dkt. 94, Prayer for Relief ¶¶ 1–7. The complaint is dated October 13, 2026 and signed by Sheppard, Mullin, Richter & Hampton LLP as proposed counsel for the debtor.

Through the last main case entry reviewed (Dkt. 100, entered October 15, 2026), no motion for a temporary restraining order or preliminary injunction and no response from either defendant appears on the main case docket. Filings in the adversary proceeding itself are docketed separately under Adv. No. 26-02134 and were outside the scope of this review. The docket text for entry no. 94 reflects the $350 adversary filing fee as not paid at the time of entry. Counsel for Twin Rivers Unified School District requested special notice in the main case on October 9, 2026.

The State of California also figures elsewhere in the main case. The debtor’s cash use motion (Dkt. 21) included a request for interim and final orders authorizing the State of California to recover prepetition overpayments from future apportionments. The court granted that motion on an interim basis at the October 8, 2026 hearing (Dkt. 66), and the written interim order was entered on October 15, 2026 (Dkt. 95), with a further hearing set for November 10, 2026.

Source: main case docket, No. 26-25868, via Research Suite; Dkt. 94 as noted.