The ruling was another blow to outgoing State Schools Superintendent Tony Bennett, who lost his re-election bid in November to Democrat Glenda Ritz.
Bennett had pushed for takeover of the five schools, which now are run by private groups — two out-of-state companies and an Indianapolis-based nonprofit.
Department of Education spokeswoman Stephanie Sample said Monday that the agency intends to appeal the ruling. She told The Times of Munster that the judgment applies to the section of law governing the entire state, meaning "it applies beyond just" Indianapolis Public Schools.
In May, the State Board of Education affirmed Bennett's decision to take over the five schools, which had been on academic probation for six consecutive years.
The board's decision resulted in the schools' private operators receiving the highest level of per pupil funding in the state — twice as much as some districts — for the first six months the school year.
The Indianapolis Star has reported that McCarty's ruling means more than $6 million in student funding transferred from IPS to the schools' private operators should not have been taken away.
Former Gary School Board member Darren Washington told The Times the ruling could mean that in addition to IPS, the Gary Community School Corp. may see a refund of at least $2 million, depending on the outcome of the case.
Both the Indianapolis and Gary school districts lost enrollment when the outside management companies took over the operation of the schools.