PRESTONSBURG — A judge dismissed a lawsuit against the David School Monday, ending the danger that the school could be dissolved.

In so doing, however, Circuit Judge Johnny Ray Harris barred David School founder and director Danny Greene and former board member Sister Emma Criz from having anything to do with the school in the future. Instead, Harris made permanent a temporary board of directors that has been governing the school since earlier this year.

The state filed suit against the school two months ago, seeking to liquidate and involuntarily dissolve the nonprofit corporation that owns the school, based on allegations of financial mismanagement.

The complaint alleges that school founder and director Danny Greene has presided over worsening conditions at the school, even as his own personal fortunes have risen.

The complaint noted that this year Greene ended the school lunch program and cancelled employee’s health insurance plans without informing them he was doing so. However, over the past 11 years, the school has contributed $18,000 a year, in addition to an initial lump-sum payment of $54,000, to Greene’s retirement account, as well as $14,000 for a $300,000 life insurance policy on Greene.

The document also alleged the David School Board of Directors — which the AG maintains has at most two members, including Greene — has not met regularly since 2009 and “has failed to provide oversight of the David School’s finances.”

“Upon information and belief, since February 2009, funds have been expended without oversight and accounting safeguards by the Board of Directors,” the complaint says.

In particular, the complaint alleged Greene was paid twice during two pay periods and that he negotiated a sale of property “in which there was a conflict of interest … and the transactions were grossly unfair to the David School.”

The result of the spending and lax oversight, the complaint maintains, has been disastrous for the David School’s finances.

“Plaintiff believes that defendant the David School is not able to pay its debts as they become due in the usual course of affairs,” the complaint says. “Plaintiff believes that such financial problems are a direct and proximate result of Mr. Greene’s unauthorized, self-dealing actions.”

On Monday, Harris dismissed the lawsuit against the school, saying it “is now functioning as a non-profit corporation in a manner consistent with KRS Chapter 273 and no longer needs to be liquidated or dissolved.”

Harris found that Greene had managed the school “in a manner that is dangerous or hazardous to the safety or well-being of the public and the students and faculty of the school.” As a result, he barred Greene and Kriz from “carrying on any business or having any affiliation with the David School.”

Harris also found that the temporary board that had been governing the school since the lawsuit was filed “has the qualifications and expertise to serve as a permanent board of directors” and he appointed Denny Dorton, Ned Pillersdorf, Bertha Daniels, Lowell Parker and James Michael Goble to continue serving on the permanent board.

Pillersdorf said Monday that the David School has begun to emerge from a cloud that has hung over the school, since before the lawsuit was filed. He said the school has begun raising operational money again and is on track to reopen on its traditional start date after Labor Day.