My daughter has been given a possible 5 day suspension at school.
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If it happened like you say, that is truly a ridiculous situation - like something you hear about from time to time on the news regarding zero tolerance in schools, but worse. The problem here is that your daughter is in trouble because she followed the orders of the administration and teachers. She would not have brought the knife to school unless her teacher had requested it.
The knife was taken away at the event. Where was 'zero tolerance' then??? Obviously zero tolerance was overlooked by the principal when he realized the presence of the knife was due to a teacher's request for an event! - the subsequent situation is no different.
The principal then ordered the teacher to give your daughter back the knife at the end of the day to take home. This itself would obviously violate zero tolerance because your daughter would have the knife in her possession on school grounds - if she was dangerous, she could've hurt someone with it then on school grounds, and it would've been the school's fault for giving it to her! But it was ok because the principal had told the teacher to do it? Yes. This is twice that the administration has made a mockery of its own zero tolerance policy. Two objective violations that were overlooked (one was overlooked, and the other was going to be overlooked) because the administration/teacher was the reason for the violation. If she'd have taken it home, supposedly all would have been well.
But she wasn't given the knife that afternoon - this was the teacher's fault, not your daughter's. When the teacher got around to giving your daughter the knife - in the middle of the day, and after all urgency had been forgotten - she put it in her locker and left it there by accident: because the rest of the day passed before she had to think about it again, and the "incident" was weeks old and out of mind by now - neither of which was your daughter's fault but the teacher's for failing to give her back the knife when he was told to by the principal.
There's a principle in law called "estoppel." http://en.wikipedia.org/wiki/Estoppel
"Reliance-based estoppels—These involve one party relying on something the other party has done or said. The party who did/said the act is the one who is estopped."
So the administration should be estopped from suspending - finding fault with - your daughter in this situation because she relied on what they said to resolve the situation. The fact that she forgot about the knife in her locker is not an unforeseeable outcome given the circumstances, and the administration shouldn't be able to wiggle out from the basic truth of the matter because of your daughter's forgetting about the knife.
If I were your attorney (and I am not) I would sue the administration and the teacher, I would immediately ask for a TRO (temporary restraining order) prohibiting the suspension of your daughter, and sue to get the suspension removed from her record, and for money damages. This would probably result in immediate backpedaling by the administration and everything would be worked out satisfactorily. It seems far fetched that any judge would stand for this, because it is so fundamentally unfair. If I were you, I would immediately contact a local attorney and discuss your case. You should also, but only after consultation with the attorney who may have a different opinion, contact local media to shine a light on the idiocy of the situation. This would put additional pressure on the school.