Bankruptcy judge denies MercyOne request to dismiss Mercy Iowa City complaint

IOWA CITY — Continuing the Mercy Iowa City bankruptcy saga now in its third year, a judge this week denied MercyOne’s request to dismiss the liquidated hospital’s complaint against it, in part, for being too long, detailed and wordy.

“The main thrust of defendants’ argument — that the amended complaint is too long with too much detail — is an insufficient basis for dismissal,” Chief Bankruptcy Judge Thad Collins wrote in a Feb. 10 order, agreeing with a 7th Circuit judge’s assertion that it would be “an abuse of discretion … to dismiss a complaint merely because of the presence of superfluous matter.

“That would cast district judges in the role of editors, screening complaints for brevity and focus; they have better things to do with their time.”

The rejection keeps alive the adversary case between Mercy Iowa City and its former managing affiliate MercyOne six months after it was filed and 2.5 years after Mercy Iowa City filed for Chapter 11 bankruptcy in August 2023.

University of Iowa Health Care won the community hospital campus in a bankruptcy auction — providing Mercy Iowa City and its liquidation oversight committee $37.4 million. Additionally, the liquidation trust is seeking $55 million from MercyOne to help pay back its many creditors — including secured bondholders owed $62 million, unsecured creditors owed $38 million; and pensioners owned nearly $30 million.

In its adversary complaint, Mercy Iowa City’s liquidation trust accused MercyOne — which functioned as the hospital’s managing affiliate from 2017 to 2023 — of “breach of contract, unjust enrichment, breach of fiduciary duty, and negligent misrepresentation.”

In asking the court to dismiss the complaint, MercyOne compared the “550-paragraph, 106-page, 14-count amended complaint against (MercyOne), (former Mercy Iowa City CEO) Sean Williams, and (the Iowa Heart Center)” to “kitchen-sink or shotgun complaints — complaints in which a plaintiff brings every conceivable claim against every conceivable defendant.”

Before rejecting that argument in his Tuesday order, Collins referred to his earlier urging the two sides work toward a settlement to avoid “substantial expenditures of time and money.”

When that didn’t happen — with the Mercy Iowa City trust filing an adversary complaint and MercyOne arguing for its dismissal — Collins reiterated his concern the matter was growing increasingly costly and “moving sideways” and again suggested consideration of a settlement.

“(MercyOne’s) counsel responded sharply that his clients did not appreciate the court pressuring them to settle, saying that they now wanted to fight for total vindication,” according to Collins, who flagged MercyOne’s “change in tune and tone from the previous understanding that evaluating potential resolution was a common goal of all parties.”

“The court then reiterated that (MercyOne) was not being prohibited — and would not be prohibited — in any way from proceeding on the merits and an attempt at full vindication at trial.”

In that vein, Collins promised to push both sides toward trial — avoiding more pretrial disputes — and denied all of MercyOne’s arguments for dismissal, including that the complaint was too verbose.

“Lengthy and unnecessarily detailed complaints are not cause for concern as long as defendants are able to identify the claims against them and the facts supporting those claims,” Collins wrote, noting this case in particular “is not a simple one-transaction, one-defendant case.”

“It allegedly involves the many complicated transactions of running a hospital over many years,” he said. “Much of what the court dealt with in the underlying bankruptcy is now involved in this case. There are three defendants and 14 separate claims. This case thus falls into the category of complex business litigation that properly involves a longer, more detailed complaint to fully and fairly set of the claims.”

Vanessa Miller covers higher education for The Gazette.

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