Gallup-McKinley Board Votes to Settle Lawsuit with Former Virtual Provider

The Gallup-McKinley County Schools Board of Education voted Monday to settle litigation with its former virtual learning contractor, Stride Inc. The Feb. 23, 2026 vote follows months of state and legislative scrutiny after the district canceled the Stride contract, a move the state Public Education Department says displaced roughly 3,000 online students.

Board members approved a settlement at the Feb. 23 meeting, but the district has not disclosed the financial or injunctive terms. The verified complaint filed by the Board of Education and Superintendent Michael Hyatt originally was filed in McKinley County Eleventh Judicial District Court and, according to court records referenced in reporting, was moved to the U.S. District Court for the District of New Mexico in September. A Justice database entry for Gallup-McKinley lists a “Summary | Resolution Agreement” on the D.N.M. docket; the entry does not include the text of any agreement.

GMCS’s complaint named STRIDE, INC. d/b/a K12 Virtual Schools, LLC as defendant and also identified James Rhyu, Peter Stewart, Ryan Stutler and Adam Hawf in the caption. The complaint alleges Stride “intentionally and knowingly” boosted profit margins by cutting the number of teachers and staff, and it asserts causes of action including fraud, unfair trade practices, constructive fraud, civil conspiracy, tortious interference with a contract, unjust enrichment and defamation. The filing sought an entry of judgment for unjust enrichment, attorneys’ fees and treble damages under N.M. Stat. Ann. § 57-12-10 (1978), and punitive damages.

State education officials framed the dispute as part of a wider budget problem at the Public Education Department. PED Secretary Mariana Padilla told lawmakers that the district’s cancellation of the Stride contract displaced about 3,000 students and that other districts “stepped up to absorb the students.” Padilla and state lawmakers cited the arrangement in connection with a reported $35 million PED shortfall; reporting quoted a person identified only as “Mitchell” describing the Legislature’s interest as “legislators wanting to pin blame” and adding, “It’s just that they don’t want to be wrong.”

The procurement and funding mechanics heightened the controversy: New Mexico funds districts based on prior-year enrollment, and Padilla’s account said Gallup-McKinley “continued to draw money for students it no longer taught” after discontinuing the virtual program. Whether the settlement requires GMCS to return funds to PED or otherwise resolve the state budget impact was not disclosed in board materials or public reporting.

Separately, GMCS settled a long-running public-records dispute that began when parents Teri Garcia and Stefanie Mortensen sued the district in July 2018 over a 50-cent-per-page charge. That settlement required the district to release nearly 12,000 pages and to pay $14,000 to the plaintiffs, according to Associated Press reporting that credited the Gallup Independent; Superintendent Michael Hyatt and school attorney Andrew Sanchez did not respond to requests for comment in that story.

With the board vote complete but settlement terms unreleased, the federal docket entry and the district’s Feb. 23 minutes are the next documents to examine to determine whether the resolution includes repayments to PED, releases for Stride or any ongoing oversight provisions.