Attorneys helping University of Iowa acquire Mercy Hospital bill $1.8M

IOWA CITY — Since University of Iowa Health Care more than two years ago initiated efforts to take over Mercy Iowa City, a Chicago-based law firm has billed it $1.8 million for “transactional and regulatory assistance arising in connection with a potential affiliation” involving the hospital.

Although UI has its own general counsel office with 13 attorneys — including Associate Vice President for Legal Affairs for UI Health Care Joseph Clamon — and often is represented by the Iowa Attorney General’s Office, the campus says it occasionally seeks “support from outside counsel for projects requiring specialized expertise.”

Like the Polsinelli Law Firm’s role in helping UIHC buy Mercy as part of the 150-year-old community hospital’s Chapter 11 bankruptcy filing. Although UIHC started with a $20 million offer to buy Mercy assets, counter bids brought the final price to $28 million.

“Consistent with its commitment to maintaining sustainable access to care and health care workforce, and in light of the current impasse among the parties to this bankruptcy court proceeding, the State University of Iowa is willing to intercede to preserve the legacy of Mercy Iowa City,” Polsinelli attorney David Gordon said on behalf of the university during a surprise reopened auction Oct. 27 to name UIHC the winning bidder instead of the bondholder that Mercy originally identified as making the best offer.

In an engagement letter the university signed with Polsinelli in July 2021 — when UIHC first offered to commit $605 million over 10 years to take over Mercy — the law firm agreed to represent the UI in both its Mercy-related endeavors and for other needs.

“We understand that we are being retained to … provide the University of Iowa Health System and the University of Iowa with general transactional, operational, and regulatory assistance (that is unrelated to the Mercy Iowa City matter) from time to time.”

The $605 million UIHC offer to Mercy in 2021 didn’t materialize for reasons that haven’t been made public. But, in its continued representation of the university as the Mercy situation evolved, the firm’s rates and fees remained static — ranging from $295 an hour for associates to $700 an hour for shareholders.

Mercy fees accumulate

While UIHC is paying its own attorney fees tied to the Mercy deal, more and more other attorneys and investment bankers are requesting payment of their fees from Mercy through the bankruptcy court.

Acting U.S. Trustee Mary Jensen filed an objection Nov. 6 to law firm McDermott Will & Emery’s accumulated $922,897 in fees for just the first three weeks in August, arguing “the amount shocks the conscience.”

And since Nov. 6, McDermott has filed another application for more than $650,000 for its work in September — with two firm partners making $1,850 and $1,855 an hour. Because attorney Felicia Perlman reported working 103 hours at that rate in September, she accumulated $191,290 in fees over the course of the month.

Of the 23 McDermott attorneys who worked on the case in September, 14 charged more than $1,000 an hour — with one partner making $40,442 for 28 hours of work.

A second law firm representing Mercy — Nyemaster Goode, P.C., of Cedar Rapids — is requesting $82,231 for work in August and $95,372 for work in September.

H2C Securities — an investment banker for Mercy, to which the U.S. trustee has objected — has requested $69,258 in fees for September and October, in addition to hundreds of thousands tied to transaction landmarks.

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