MercyOne calls Mercy Iowa City complaint a ‘novel,’ warranting dismissal

IOWA CITY — With bankrupt Mercy Iowa City and its former managing affiliate MercyOne snared in a growing web of legal disputes — including a Mercy complaint accusing MercyOne of breach of contract and a MercyOne appeal of the hospital’s liquidation plan enabling that complaint — the Des Moines-based affiliate is accusing Mercy Iowa City of being too verbose in its arguments, demanding case dismissal.

“The Mercy Hospital liquidation trust filed a 550-paragraph, 106-page, 14-count amended complaint against (MercyOne), (former Mercy Iowa City CEO) Sean Williams, and (the Iowa Heart Center),” according to MercyOne’s motion for dismissal, comparing Mercy Iowa City’s complaint to those often criticized as “kitchen-sink or shotgun complaints — complaints in which a plaintiff brings every conceivable claim against every conceivable defendant.”

“The story includes chapters and subchapters, transitions, and a voluminous cast of characters and their interactions,” MercyOne said of the complaint in its motion for dismissal last week. “Defendants cannot meaningfully respond without the undue burden of weeding through (Mercy Iowa City’s) prolixity and writing its own novel in response.”

At the same time, MercyOne also is continuing to fight the bankrupt hospital’s liquidation plan that released thousands of people and entities in more than 100 categories from being sued — essentially everyone but MercyOne — by arguing through appeal, among other things, that it has standing to object to the plan as an “impaired creditor” owed money.

Of course, Mercy Iowa City in May offered to pay MercyOne the full $31,524 it owed the affiliate, given “the amount expended in defending MercyOne’s appeal easily outstrips the meager value of its claim.”

But MercyOne refused to take the money, prompting Mercy’s liquidation trustee to ask a bankruptcy judge to force MercyOne to accept it — which the judge has not yet done.

“The liquidation trustee inaccurately states he has made ‘meaningful distributions to the creditors affected by the releases’,” according to MercyOne’s defense of its appeal, filed earlier this month. “Rather, he has made no distributions to unsecured creditors (or most claimants), who plainly are ‘affected by the releases’.”

MercyOne saga

The recent back and forth continues a yearslong saga dating back to 1998, when MercyOne began soliciting Mercy Iowa City for a partnership — which materialized in 2017 with an affiliation agreement meant to effectuate an eventual merger.

But — before that could happen — the arrangement devolved, as Mercy Iowa City continued to struggle financially. In its search for a new owner or partner, Mercy received a $600-plus million offer from University of Iowa Health Care to buy it in 2021.

When that didn’t materialized, Mercy Iowa City found itself stuck with MercyOne until both parties in spring 2023 agreed to terminate the deal — just months before Mercy Iowa City in August 2023 filed for bankruptcy.

From the case’s start, Mercy Iowa City hinted at its plan to sue MercyOne for what it described as “mismanagement” and “breach of the affiliation agreement.”

“Despite Mercy Iowa City’s financial condition and MercyOne’s failure to perform under the affiliation agreement, MercyOne refused to reduce its management fees to Mercy Iowa City until summer 2022,” according to Mercy’s complaint, describing more than $14 million in fees it paid MercyOne between 2017 and 2023.

In total, Mercy Iowa City — which received $37.4 million from UI Health Care through its bankruptcy sale — is seeking at least $55 million from MercyOne to help pay back its creditors, including secured bondholders owed $62 million; unsecured creditors owed $38 million combined; and pensioners owed up to $29.5 million.

But MercyOne, in its request for dismissal, flagged other issues with the complaint — beyond it being too wordy. MercyOne also is accusing Mercy of trying to argue both that it had a contract with MercyOne and also that it had a “quasi-contract.”

“Iowa law does not permit a plaintiff to assert a breach of contract action while simultaneously seeking quasi-contractual remedies such as unjust enrichment on the same facts,” according to MercyOne’s motion to dismiss.

Vanessa Miller covers higher education for The Gazette.

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