UI ordered to pay contractor $12.8 million more over Children’s Hospital dispute

IOWA CITY — More than seven years after a Cedar Rapids contractor first sued the University of Iowa over delayed payment for work on a pair of high-profile projects — Hancher Auditorium and the Stead Family Children’s Hospital — a jury has delivered another blow to the UI, ordering it pay $12.8 million more to the contractor.

A jury last week deliberated just over an hour before finding the UI in April 2016 wrongfully blocked the American Arbitration Association from refereeing its disputes with Modern Piping on both the Hancher and hospital projects.

The judgment will further swell expenses tied to the 14-story Children’s Hospital — which originally had a $270.8 million price tag but as of today has cost more than $400 million, due to delays, budget overruns and mismanagement documented in The Gazette’s “Tower of Troubles” investigation in 2018, as well as litigation and defects that forced the UI Hospitals and Clinics to replace wide swaths of windows.

Counterclaim

A judge in the Modern Piping dispute first sided with the contractor and arbitration association in 2017, ordering the UI to pay tens of millions — prompting the university to seek a new trial. When a judge denied that request, the UI appealed. But the Iowa Court of Appeals in 2019 upheld the ruling against the UI — affirming a Johnson County District Court judge’s $21.5 million award for Modern Piping.

“We find no error in the district court's determination,” according to the appellate court.

A short time later, Modern Piping filed a counterclaim seeking compensation for all the costs UI’s original refusal to arbitrate precipitated.

“Modern Piping incurred damages, attorneys’ fees, expenses, and other economic harms related to its efforts to dissolve that injunction, its related appeal, and this action,” according to the 2019 counterclaim. “Therefore, Modern Piping requests an award of damages arising from Iowa’s wrongful … injunction.”

Following several court delays, jurors began hearing evidence on the assertion Oct. 25. They began deliberating just after noon Oct. 27 and at 1:30 p.m. that same day returned a verdict finding the UI wrongfully obtained the injunction and harmed Modern Piping in doing so. When asked by how much the UI was “unjustly enriched” as a result of its “wrongful injunction,” the jury reported $12.8 million — a total award that included $21,785 in attorney fees.

Window dispute ongoing

The UI Stead Family Children’s Hospital began treating patients in February 2017, years after its original planned opening in 2015, when Modern Piping filed its first lawsuit against the UI demanding payment on the Hancher and children’s hospital projects.

Just two years after the Children’s Hospital opened, UIHC officials discovered floors of damaged windows. They went to the Board of Regents in 2021 asking for $10 to $15 million more to replace them.

An extra $15 million would push the university’s total Children’s Hospital cost — with other judgments — to $407.7 million, although UIHC in June sued the two contractors who installed the defective, delaminating and cracking windows.

Those contractors — Cupples International Inc., of St. Louis, and Iowa City-based Knutson Construction — in July asked the court to dismiss, or at least pause, the case and compel arbitration, which they argued is required by their original contract.

“The contract between the Board of Regents and Cupples contains a valid mandatory arbitration provision that covers the claims brought by the board,” according to the contractor, citing the Modern Piping dispute in preemptively objecting to any UI pushback against arbitration.

"Any question regarding whether the specific contract at issue contains a valid and mandatory arbitration clause has already been decided several times by this court and affirmed by the Iowa Court of Appeals. See Modern Piping, Inc. v. Bd. of Regents.“

The UI and the Board of Regents did push back, though, resisting arbitration by asserting the window issues aren’t covered by arbitration clauses in the contracts like they were with Modern Piping — although the UI fought against arbitrating the Modern Piping claim, too.

“In order to stay this litigation in favor of an arbitration between the parties, Cupples must establish that the university’s entire claim falls within the scope of the arbitration provision,” UI argued, according to court documents. “Arbitration is strictly ‘a matter of consent,’ and thus ‘is a way to resolve those disputes — but only those disputes that the parties have agreed to submit to arbitration’.”

Chief District Court Judge Lars Anderson in September ruled in favor of the contractors — ordering arbitration.

“The procedural questions presented are for the arbitrator, and not this court, to decide,” according to Anderson, who paused the litigation in late September for arbitration.

UI officials on Thursday did not answer The Gazette’s questions about how much the university has spent to date addressing the failed windows — including consulting fees, temporary fixtures, new windows and court costs.

Although no replacement work has yet begun, any windows of concern have been temporarily secured with protective film and clips and are being actively monitored by outside experts, according to a UI Health Care spokeswoman.

UIHC plans to bring a more specific budget to the Board of Regents early next year, as it seeks to recover damages from the defective windows — which officials urged do not pose a risk to patients, workers, visitors, or the public.

“The construction of the children’s hospital was an investment in Iowa, and we relied on and paid contractors to deliver a high-quality product,” Kimberly Hunter, UI Hospitals and Clinics interim chief executive officer and chief nursing executive said in an emailed statement.

“We look forward to resolving this dispute with the contractors through arbitration."

With last week’s judgment, and without any compensation for money spent replacing windows, expenses tied to the Children’s Hospital could top $420.5 million.

Vanessa Miller covers higher education for The Gazette.

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