Iowa City couple winning record verdict among Mercy’s ‘unsecured’ creditors

IOWA CITY — Although Mercy Iowa City says it has paid a $7 million settlement to an Iowa City couple whose baby suffered brain damage while being delivered there in 2018, the hospital has named the family as an unsecured creditor in its bankruptcy case as it watches the Iowa Supreme Court consider granting a new trial.

Kathleen and Andrew Kromphardt in March 2022 won what’s believed to be the largest medical malpractice judgment for a birth trauma in state history. A Johnson County jury awarded them $97.4 million after they sued Mercy and Obstetric & Gynecologic Associates of Iowa City and Coralville — or OB-GYN Associates — for negligence.

Before the verdict, Mercy reached a settlement and paid the family $7 million, earning itself dismissal from paying the balance. But, a year-and-a-half later, OB-GYN and its liability insurer, MMIC Inc., still are battling each other in federal court. And Mercy is watching as the case remains under review with the Iowa Supreme Court.

The hospital has listed the Kromphardts as a “nonpriority unsecured creditor” in its Chapter 11 bankruptcy reorganization petition filed in August — along with nearly 400 other individuals or companies at risk of being paid last or maybe not at all as the petition wends its way through court.

More than a dozen of the nonpriority unsecured creditors are — like the Kromphardts — litigants who sued and, in some cases, won settlements, awards or judgments.

When asked whether Mercy still owes or could owe money to the couple, hospital officials told The Gazette: “Mercy does not owe money on the settlement amount as agreed to be paid.” However, they said, “we do not discuss former or pending litigation.”

The Kromphardts’ inclusion in the hospital’s petition is the latest complication in their attempts to collect the entire judgment, which over the last year has included yet another bankruptcy case and a sheriff’s demand that came up empty.

‘Don’t have it’

The state Supreme Court retained the case July 23, and is now considering the OB-GYN clinic’s request for a new trial.

One question the clinic wants the court to weigh is whether “the nearly $100 million verdict must be set aside as flagrantly excessive, so out of reason as to shock the conscience or sense of justice, or the result of passion and prejudice.”

Another question is whether to reduce the amount OB-GYN owes, given Mercy’s settlement. “Because the jury found that Mercy and (OB-GYN) were equally negligent — and Mercy settled — (OB-GYN) is now liable for only 50 percent of the jury verdict,” according to the appeal, asserting OB-GYN’s liability should be $48.7 million — not the $75.7 million worth of economic damages that fell to it after Mercy’s settlement.

“This was a $27 million error,” the clinic argued.

Six months after the verdict, in October 2022, OB-GYN filed for Chapter 11 bankruptcy — hiring some of the same attorneys now representing Mercy — and asked a bankruptcy judge to stop the Kromphardts from coming for the judgment.

But a judge denied that request, and the couple in January filed a motion seeking to dismiss the entire bankruptcy — calling it, essentially, a ruse to avoid paying the judgment.

“The bankruptcy filing is a litigation tactic to avoid payment of the bond,” according to their motion. “There is no potential for reorganization” of the clinic’s business.

The bankruptcy court in April agreed and granted the motion to dismiss, compelling the clinic to drop its bankruptcy petition and file its appeal of the entire verdict with the state’ Supreme Court.

And with $66.6 million still due on the judgment — which includes a bond posted by insurer MMIC while the case is on appeal — the Johnson County Sheriff’s Office on June 7 paid a visit to OB-GYN to “make demand for payment, garnish, execute and levy all assets.”

According to court documents, though, the deputy left empty-handed. “Don’t have it,” was the answer the deputy got to the demand, records show. “I read this to them — nothing to give me.”

Clinic and its insurer battle

Still, the money remains due — pending a Supreme Court decision — and OB-GYN is left to fight with its insurance provider who pays.

MMIC — the Midwest Medical Insurance Company — is one of the companies that make up the Constellation mutual holding company for medical professional liability insurance.

MMIC on June 5 — two days before the sheriff’s office attempted its collection — filed a federal lawsuit against OB-GYN, accusing it of plotting to sue the insurer and potentially drop its appeal of the verdict, among other things. MMIC, in its petition, asked a judge to prevent the clinic from dropping its appeal.

In response, OB-GYN in July answered with its own assertions — accusing its insurer of underhanded tactics.

“The clinic had no choice but to ‘voluntarily’ file for bankruptcy,” OB-GYN asserted, adding MMIC “orchestrated the bankruptcy as part of a plan to avoid having to either post a bond or provide a comfort letter” saying it agreed with the obligation.

“(MMIC) found and hired, and paid the bankruptcy lawyers,” according to OB-GYN. “MMIC/Constellation’s plan was almost successful. It was only days away from entering into an agreement to this effect when the bankruptcy judge stepped in and dismissed the bankruptcy as fraudulent.”

The clinic, in its filings, also accused the insurer of “holding seminars and lobbying for the implementation of non-economic caps in Iowa and involving the governor in the process.”

“MMIC/Constellation’s propaganda and narrative selectively omitted critical details, focusing on the claim that the $97 million verdict had led to the closure of an Iowa clinic, causing doctors to leave the state, despite the lack of evidence supporting the claim of doctors leaving Iowa,” according to OB-GYN, mentioning Mercy’s decision to settle early.

“Furthermore, it did not disclose that MMIC/Constellation had refused to negotiate in good faith … or offer even a penny to settle the case,” OB-GYN stated. “It also omitted that the clinic, Mercy Hospital, and the doctors were pleading with MMIC/Constellation to settle, yet it offered no protection to the clinic or the doctors. Instead, it orchestrated the bankruptcy, hired and paid the bankruptcy lawyers, and refused to shield the clinic or its insured doctors from financial ruin.”

The courts have not provided a timeline for ruling on the cases.

Other lawsuits

In disclosing details of the over $79.5 million Mercy owes bondholders and creditors with unsecured and secured claims, the hospital as part of its petition reported owing an “undetermined” amount to individuals who sued — cases still pending, in dispute or under appeal — or in cases possible but not yet filed.

Among litigation against Mercy listed as “potential” is a lawsuit from the family of a 2-year-old who died in 2021 after a routine procedure to put tubes in his ears and remove his adenoids. The family of Louden Lofgren — the grandson of state Sen. Mark Lofgren, R-Muscatine — sued ENT Medical Services and one of its physicians for negligence.

Throughout the lawsuit, which is set for trial in 2025, are mentions of Mercy — including a note that the boy was seen there after the procedure, given a partial blood transfusion and discharged.

When asked to list in it bankruptcy petition current or potential causes of action against entities or individuals the hospital wants to take against others — regardless of whether Mercy has filed a lawsuit against them yet — the hospital named three entities:

“Although Mercy Hospital sought to contain the immediate fallout through its own internal and external communications, the impact to the organization was swift and harmful,” Toney reported. “Concerns about Mercy Hospital’s continuing existence, and the impact of a potential receivership on families’ livelihoods, resulted in employee resignations, patient cancellations, canceled job interviews and delayed new employee start dates, and ultimately impacted Mercy Hospital’s ability to serve its patients.”

Comments: (319) 339-3158; vanessa.miller@thegazette.com