Former Mercy Iowa City executives sue for non-payment

IOWA CITY — The same day in July that Mercy Iowa City’s largest bondholder asked for a receiver to take control of the hospital’s operations — a move hospital officials said compelled them to file for bankruptcy protection days later — a pair of recently terminated Mercy executives also filed suit against their former employer, accusing the hospital of ghosting them and shorting them payments that were promised.

“Mercy Hospital has not paid the additional payments that are due and owing Miller and Andronowitz under the offer letters and severance agreements,” according to the July 24 lawsuit. “Mercy Hospital has not responded to Miller and Andronowitz’s demand for payment or provided any explanation for its continued non-payment.”

Dawna Miller and Judy Andronowitz were Mercy’s chief financial officer and clinic chief operating officer, respectively, until August 2022 — around the time the hospital told employees its search for a new strategic partner had come up dry and it would remain an affiliate of Des Moines-based MercyOne.

In a email dated July 28, 2022 — obtained by The Gazette — Mercy’s then-acting President and Chief Executive Officer Mike Trachta, who since has returned to his primary MercyOne position as vice president of network affiliates, announced the failed search and other staff changes.

“I wanted to update you on two leaders who are leaving Mercy Iowa City,” Trachta wrote then. “I want to thank Dawna Miller and Judy Andronowitz for their contributions to our organization. Please join me in wishing them well.”

A year later, both women report in their lawsuit being terminated in August 2022 and entering into severance agreements “wherein Mercy Hospital agreed, among other things, to pay the 12 months severance pay initially promised in (their) offer letters.”

Mercy hired Andronowitz as clinic chief operating officer for Mercy Services in March 2019 with an offer letter committing to pay her 12 months’ salary if Mercy ended her employment “as a result of a reduction in force or material position redesign after one year of continued service.”

The hospital hired Miller about a year later in April 2020 to serve as its vice president and chief financial officer, likewise agreeing to pay her 12 months’ salary if she was terminated “as a result of a reduction in force or material position redesign after one year of continuous service.”

Just a few months later, in August 2020, Mercy and Miller entered a retention agreement eliminating the condition that required her to be employed a full year, the suit said. “In the Aug. 6, 2020, confidential retention agreement, Mercy Hospital reaffirmed its obligation to continue to pay Miller’s salary for an additional twelve months if Mercy Hospital terminated Miller’s employment ‘due to a reduction in force or material position redesign’,” according to the lawsuit.

Following their terminations last year, Mercy paid both women amounts outlined in their severance agreements but not “the additional payments that are due and owing.” The lawsuit does not say how much money that represents.

“Miller and Andronowitz reasonably anticipate that Mercy Hospital will not pay any of the additional amounts owed under the offer letters and severance agreements,” according to the lawsuit. “Mercy Hospital is aware of its contractual obligation to pay plaintiffs the severance owed them, and its refusal to pay the additional severance is intentional.”

The former employees are asking a Johnson County judge to declare Mercy in violation of Iowa’s Wage Payment Collection Law and award them the outstanding pay owed — plus interest and enough to cover attorney fees and damages.

In Mercy Hospital’s tax filings in 2021, it reported paying Miller $391,485 for the year. It didn’t provide a compensation amount for Andronowitz.

Miller and Andronowitz are among 18 individuals, companies, departments and estates that Mercy has listed in its bankruptcy filings as involved in legal actions or disputes with the hospital.

Eight months after the former executives reporting being terminated, Mercy in April announced it again was parting ways with MercyOne and hired ToneyKorf Partners LLC to provide management services and advice “to improve Mercy Iowa City’s operations.”

A March 30 engagement letter with ToneyKorf tasked it with providing a number of temporary staff to the hospital — including a chief restructuring officer, paid $950 an hour; a chief financial officer, paid $725 an hour; a chief information and chief operating officer, paid $650 an hour; and a finance manager, paid $300 an hour.

In the last year through Aug. 7 — when Mercy filed for Chapter 11 bankruptcy — the hospital paid the firm $3.2 million. Mercy has an outstanding request before the bankruptcy court to keep paying ToneyKorf at the same rates, plus a $500,000 retainer fee and $250,000 success fee for selling Mercy’s assets.

The University of Iowa has signed a letter of intent to buy substantially all of Mercy’s assets for $20 million. That is well below the $63 million in debt Mercy owes secured creditors and the millions more it owes on its unfunded pension plan and to unsecured creditors, like those in unresolved lawsuits.

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