Mercy Iowa City ‘will be filing a complaint’ against MercyOne

IOWA CITY — In both defense and attack mode as a lawsuit against it looms, MercyOne has asked a higher court to weigh in on the recent dismissal of its appeal of Mercy Iowa City’s bankruptcy liquidation plan while also denying the defunct hospital documents it wants for any lawsuit it files against MercyOne.

“The (Mercy Iowa City liquidation trust oversight committee) will be filing a complaint against MercyOne on or prior to August 7, 2025,” according to the committee’s request for a hearing compelling MercyOne to answer for its failure to produce email records. “Without the benefit of reviewing MercyOne’s internal communications, the (committee) is unable to effectively assess whether additional causes of action may exist.”

The two sides — which had a nearly six-year management relationship until their formal falling out just before Mercy Iowa City filed for bankruptcy on Aug. 7, 2023 — spent about six weeks negotiating search terms for MercyOne’s email production, which a bankruptcy judge ordered in March.

The goal, according to court documents, was to “narrow the scope of electronic communications related to Mercy Iowa City, of which MercyOne represented it possessed a significant number.”

MercyOne attorney David Goroff in May said, “I will try to give you more sense of volume of email/(electronically stored information) as we get closer.”

Despite its obligations and indications, MercyOne recently produced just a single email, according to the Mercy Iowa City committee. When asked about the lack of documents, MercyOne CEO Robert Ritz and former Mercy Iowa City CEO and current MercyOne Vice President Michael Trachta in June depositions said they believed all of MercyOne’s Mercy Iowa City-related emails had been “deleted, lost, or destroyed in 2023 following MercyOne’s merger with Trinity Health.”

“Mr. Trachta testified that he ran only one search — for documents that included the term ‘Mercy Iowa City’ — and that his search came back with zero hits,” Roy Leaf, an attorney for the committee said in a June 20 letter provided to the court. “He further explained that MercyOne underwent an IT system transition in 2023 and that, after that transition, email communications were only retained on MercyOne’s servers for six-months.”

In his letter, Leaf said MercyOne could have “reasonably” anticipated a lawsuit from Mercy Iowa City — legally binding it to maintain email.

“In light of this development, we now have significant concerns that MercyOne has spoliated evidence and, at the very least, conducted a deficient search for electronically-stored communications,” he wrote. “This is incredibly frustrating, as you can imagine, after counsel for the (committee) spent numerous hours on meet and confer calls and meticulously drafting search terms — at your request to alleviate burden you said existed.”

At no point before the Ritz and Trachta depositions did MercyOne tell the court or committee that nearly all its email communication had been “lost, deleted, or destroyed,” according to the committee’s filing.

‘Time is of the essence’

In response, MercyOne attorney Goroff called any accusation of destroyed records “frivolous.”

“The (committee) has admitted that litigation was neither imminent nor reasonably certain as of February 2023,” Goroff said, adding MercyOne has the right to adhere to its own document retention policy to retain emails for just 180 days absent a litigation hold.

“Your letter inaccurately asserts that MercyOne’s system ‘was purged in March 2023’,” Goroff wrote. “Rather, at all times, MercyOne rightly adhered to its document retention policy.”

The Mercy Iowa City committee in its court filing accused MercyOne of making threats and of failing to elaborate on its process for trying to retrieve email.

“The (committee) and its counsel are not intimidated by the threats,” according to the committee’s request not only for a hearing on MercyOne’s failure to produce emails but for a suspension of the statute of limitations barring them from suing MercyOne after Aug. 7.

“Time is of the essence for us,” Leaf wrote in a June 24 email to Goroff, highlighting Mercy Iowa City’s Aug. 7 deadline to sue. “The documents and communications that MercyOne represented it had access to … are critical to our investigation and assessing claims that may exist.

“We are prepared to move quickly in the bankruptcy court to address this issue to preserve rights on behalf of the creditors of the estates.”

A bankruptcy judge set a hearing on the dispute for July 14.

‘A gratuitous offer’

While continuing to battle the Mercy Iowa City committee over records and emails in bankruptcy court, MercyOne this week also took to the U.S. Court of Appeals for the Eighth Circuit its appeal of the lower district court’s March dismissal of its challenge to a Mercy bankruptcy liquidation plan that leaves it — and only it — exposed to litigation.

As part of that dismissal, the U.S. District Court for the Northern District of Iowa found MercyOne lacked standing to appeal, despite the $31,524 Mercy Iowa City owed it at the time of bankruptcy. Addressing the argument that debt makes MercyOne a creditor in the case, the hospital’s liquidation trustee recently tried to pay back MercyOne, which refused to accept it — given doing so would eviscerate one of its arguments for holding standing to fight the injurious liquidation plan.

“The trustee wishes to so issue payment in light of the fact that ongoing litigation and appeal expenses will far exceed (and have exceeded) the face amount of MercyOne’s claim,” according to a trustee request for a judge to intervene and force MercyOne to take the money.

Among its appeal arguments in the Eighth Circuit, MercyOne asserted the liquidation plan released from potential litigation 108 categories of people and entities — including directors, managers, affiliates, employees, and advisers.

“The plan singled out MercyOne as the one entity not being released,” according to the appeal, calling the sweeping releases “unprecedented.”

“Each category … may have tens, hundreds or thousands of persons or entities,” according to the appeal. “Indeed, (Mercy Iowa City) alone had thousands of employees.”

Addressing the District Court’s lack-of-standing finding, MercyOne said its claim remains outstanding “and no payments have been made” — even while acknowledging the trustee’s recent attempt to make good on the debt.

“In an attempt to moot MercyOne’s standing, a member of the (committee) stated it would pay MercyOne’s claim in full, while (the committee) still reserved all rights to pursue its claims against MercyOne.”

MercyOne in its appeal called that a “gratuitous offer” in violation of bankruptcy code.

“It is quintessential to confirmation of a plan that claims of creditors in a particular class be treated the same,” according to the appeal. “To pay 100 percent of MercyOne’s claim while others in the same class are to receive little or none would violate that principle.”

Vanessa Miller covers higher education for The Gazette.

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