IOWA CITY — At the heart of a $21.5 million clash between the University of Iowa and a contractor about the more than $360 million Stead Family Children’s Hospital is whether an arbitration panel was lawful in considering the dispute and whether the UI was lawful in suing the arbitration group.
That bigger question — of whether or when any person or entity can sue an arbitrating organization — is scheduled for oral argument in the Iowa Court of Appeals next week. A related case, involving the university’s appeal of a district court decision to uphold the arbitration award, hasn’t yet been retained by the Iowa Supreme Court or assigned to the Court of Appeals.
Although the appellate court is tackling the question of whether arbitration panels are immune from lawsuits disputing their involvement, attorneys for the contractor argued the issue of “arbitral immunity” is a broader one that should have stayed with the high court.
“Because the Iowa courts have never addressed the applicability of arbitral immunity to arbitration service organizations or the limits of arbitral immunity, transfer to the Court of Appeals is not appropriate,” according to Modern Piping Inc., the contractor at odds with the university.
Attorney Jeff Stone, on behalf of his client Modern Piping, argued in a recent court filing that arbitration panels are immune from lawsuits — like the one the UI filed in April 2016 to stop the American Arbitration Association from considering the Children’s Hospital dispute alongside one related to Modern Piping’s work on the new Hancher Auditorium.
“Like judicial immunity, ‘arbitral immunity is necessary to protect decision makers from undue influence, and the decision-making process from attack by dissatisfied litigants,’” according to Stone’s brief. “This lawsuit is precisely the sort of ‘attack by dissatisfied litigants’ that the doctrine of arbitral immunity forbids.”
Courts, judges and staff members are immune from lawsuits while acting in their judicial capacities — and so should be arbitrators, in that they act in a judicial capacity, according to Stone.
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“Iowa cannot sue the (American Arbitration Association) to stop arbitration for the same reason that it cannot sue the Iowa Judicial Branch to stop a lawsuit,” he wrote.
UI attorneys disagreed, even while noting that immunity applies to groups like the AAA “no matter how erroneous the act may have been, how injurious its consequences, how informal the proceeding, or how malicious the motive.”
University attorneys argued that although only actions taken “in the clear absence of all jurisdiction” negate the right to immunity, that’s what happened in this case.
Modern Piping, having sued the university over payment on the Hancher project and having taken that dispute to arbitration, in 2016 amended its claim to include gripes over work on the Children’s Hospital. The UI sued to block the arbitration panel’s jurisdiction over the hospital project, and a court temporarily ruled in the university’s favor.
But it later reversed course on grounds the UI suit was barred by arbitral immunity. Iowa asked the court to reconsider because it never agreed to arbitrate on the Children’s Hospital dispute, but that request that was denied. The university thus appealed the decision to the high court, which assigned it to the Court of Appeals.
“The parties’ contract clearly provides that AAA does not have jurisdiction absent mutual agreement,” according to the UI brief. “Parties are only required to arbitrate what they have agreed to.”
While this case could have far-reaching implications for arbitration in the state, the second UI-Modern Piping case over a judge’s enforcement of a $21.5 million award in Modern Piping’s favor would more directly impact the university.
Modern Piping was one of several contractors that sued over work on the 14-floor Children’s Hospital, which an investigation by The Gazette found was plagued by thousands of mid-project design changes, miscommunication, budget overruns and blown deadlines.
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Its budget ballooned from $270.8 million to more than $360 million, and its opening crept from an original date in 2015 to February 2017.
Modern Piping first sued the UI in March 2015 and won its $21.5 million award earlier this year — with interest accruing at a rate of $2,321.81 a day. Although the university has paid Modern Piping some of that total award, it has refused to pay the brunt of it — prompting Modern Piping to ask the Johnson County Sheriff’s Office to seize the university’s assets and suggesting the UI tap its prized Jackson Pollock “Mural” painting if it can’t come up with the money.
The District Court has halted any asset seizure while the UI appeal plays out.
The university this fall also arbitrated a lawsuit filed by a second contractor on the Children’s Hospital project — Merit Construction. In dispute in that case is about $13 million, which would further spike the Children’s Hospital price tag should arbitrators fall in step with the Modern Piping case.
Although UI President Bruce Harreld in September told the Board of Regents just two contractors had sued to take the university to arbitration over Children’s Hospital or Hancher work, several other construction firms at the time were locked in litigation on the projects.
Minuti-Ogle Contractors in 2017 sued the regents, Williams Brothers Construction and two insurance companies over the Hancher project. Quality Marble and Tile in 2017 sued the board and Woodruff Construction for its work as a subcontractor on the Children’s Hospital.
Although the Quality Marble suit was resolved in October, according to court records, the Minuti-Ogle case continues and is set for trial in September 2019.
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