The Pennsylvania Department of Education is dropping its lawsuit against the Agora Cyber Charter School in Devon.

The action, filed Friday in Commonwealth Court, came one month after the department alleged the charter's board misused millions of taxpayer dollars to benefit a company owned by the school's founder.

Michael Race, an Education Department spokesman, said state officials concluded they could require Agora to change its operations to comply with its charter without resorting to litigation.

"We withdrew the suit because we are pursuing the same remedies administratively," he said.

The Department of Education oversees the 11 cyber charter schools operating in the state.

Race said the state has referred to the state attorney general allegations of criminal violations of state law contained in the suit.

He said the state still maintained that the school violated its charter by contracting with the Cynwyd Group L.L.C., a management firm established by Agora's founder, Dorothy June Brown.

Agora's attorneys said the department decided to end the lawsuit after meeting with Agora representatives and discussing records that showed the school had informed the department in 2006 that it had contracted with Cynwyd Group.

"We certainly would have preferred to have engaged in a dialogue prior to the institution of the now-discontinued suit," said Joel L. Frank, a managing partner at Lamb McErlane P.C. in West Chester, the firm representing Agora.

"Even with notification, they were still not following their own charter," Race said, adding that the law requires schools to obtain permission to change charter conditions.

Agora, which opened in 2005, enrolls 4,400 students from districts across the state who receive online instruction at home.

The department gave Agora its charter under the condition the school would not contract with a management company. The department had turned down Agora's original application a few months earlier in part because of questions about the school's planned use of a management company.

All taxpayer money sent to Agora will continue to be deposited in an escrow account to pay teachers and other expenses and will not be used to pay Cynwyd Group, Race said.

Howard Lebofsky, chairman of Agora's board, could not be reached yesterday for comment.

"I am so pleased that PDE dropped the suit so quickly," Kathleen Suloff, the school's acting CEO, said in a statement yesterday. "It's been a challenging time for many people."

The lawsuit that is being dropped was an outgrowth of an investigation the department launched in December after several Agora parents complained the school denied them financial information about the school and the roles Brown and the Cynwyd Group played.

Agora's finances are being investigated by the Philadelphia School District's inspector general and by federal authorities as part of a widening criminal probe of charter schools.

Contact staff writer Martha Woodall at 215-854-2789 or martha.woodall@phillynews.com.