Judge bats down MercyOne request in Mercy hospital bankruptcy saga

IOWA CITY — A federal bankruptcy judge on Friday swiftly shutdown a request to pause implementation of a Mercy Iowa City liquidation plan that exposes its former financial manager MercyOne to future lawsuits.

“You know I like to consider things … or at least spend a little time with them,” Chief Bankruptcy Judge Thad Collins said Friday about his propensity to weigh all aspects of an issue before ruling. “But I don’t think that’s the case today. I’m pretty much ready to go on this.”

Des Moines-based MercyOne earlier this week sought a “stay” of the liquidation plan — pending its appeal of Collins’ confirmation of the plan earlier this month — by walking through a mandatory four-prong test of whether a stay is warranted:

Judge Collins on Friday ticked through each question, starting with whether MrecyOne is likely to succeed upon appeal. That prong, he said, "I don’t see is met. And I’ll just leave it at that.”

Moving on, Collins said, “I don’t know that there’s anything that grabs me about the public interest.” The other two parts of the test are “closer calls,” according to Collins, who still said MercyOne doesn’t pass in his mind.

“We have a lot of talk about irreparable harm, I don’t think that’s satisfied here,” he said. “And, at the end of the day, I just want to get this case moving along.”

MercyOne now can appeal to a bankruptcy appellate panel, or BAP, which can overturn any decisions and approvals from Collins — who told attorneys at the start of a Friday hearing on the MercyOne request that he already had made up his mind.

“I’m not here to move down that front, I’m not doing a stay pending appeal here — that doesn’t mean you can’t get one from the BAP,” he said at the hearing’s outset, compelling a chuckle from the Mercy Iowa City attorney. “So I just wonder if you still need to take a lot of time to talk to me about this.”

Several attorneys said they did want to speak and put their position on the record — given MercyOne is appealing Collins’ confirmation of a Mercy Iowa City liquidation plan that “releases” a long list of entities and individuals from potential litigation, but not MercyOne.

MercyOne, which managed Mercy Iowa City for years in the run-up to its filing for bankruptcy in August, only has a say in the matter because it’s among hundreds of creditors still owed money — albeit only about $31,000.

That cash, according to Mercy Iowa City attorney Dan Simon, “is not what this is about.”

“What this is about, your honor, is that MercyOne has told us that if the plan is confirmed, the liquidating trust gets funded and the liquidating trust sues MercyOne,” Simon said. “And if they are able to impede the plan being confirmed, and the liquidating trusting getting funded, maybe they can delay getting sued.”

Stressing that the bankrupt hospital went into this case with “significant acrimony” and owing its bondholders $62 million, its unsecured creditors more than $38 million, and its pensioners more than $25 million — getting all those parties on board with the plan is an accomplishment and makes upholding it “in everyone’s best interest.”

“This is a litigation tactic,” Simon said about MercyOne’s request for a stay on the plan, which Mercy Iowa City has said it’s nearly ready to “live” with, allowing for distributions to start.

“For the rest of the creditors with a true interest in maximizing recoveries on their claims in these Chapter 11 cases, justice delayed will be justice denied,” according to a written opposition to MercyOne’s request — filed by Mercy Iowa City and its bondholders, creditors and pensioners.

To other MercyOne arguments — including its contention that an analogous case involving Purdue Pharma pending in the Supreme Court could affect this case — Mercy Iowa City attorneys called them “nothing more than a disingenuous red-herring and a self-serving scare tactic.”

“This court should not be paralyzed into inaction by MercyOne’s use of Purdue Pharma as a ‘red herring’ litigation tactic that has nothing to do with MercyOne's interest in maximizing recovery on its $31,000 claim and has everything to do with avoiding being a target of future litigation.”

Following the hearing, MercyOne spokesman Todd Mizener said, “MercyOne is disappointed by Judge Collins' denial of the stay to our pending appeal. However, today’s hearing was a necessary step in the legal process. MercyOne can now add the denial of the stay to our pending appeal with the Bankruptcy Appellate Panel of the Eighth Circuit.”

Vanessa Miller covers higher education for The Gazette.

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