Education

Judges pepper attorneys with questions about University of Iowa Children's Hospital

Ruling in contractor's favor could mean trial for damages

The costs associated with the construction of the University of Iowa Stead Children’s Hospital are at the heart of a lawsuit heard Thursday by the Iowa Court of Appeals in Des Moines. (File photo by Stephen Mally/The Gazette)
The costs associated with the construction of the University of Iowa Stead Children’s Hospital are at the heart of a lawsuit heard Thursday by the Iowa Court of Appeals in Des Moines. (File photo by Stephen Mally/The Gazette)

DES MOINES — An attorney representing the University of Iowa in its fight with a contractor over work on its new Stead Family Children’s Hospital dug in Thursday before three Court of Appeals judges, arguing an arbitration panel never should have considered the dispute and thus isn’t immune from UI action against it.

“The immunity doctrine is not going to apply under these circumstances and this case,” Iowa’s Assistant Attorney General George Carroll told the judges, referencing a doctrine that protects an arbitration association from lawsuits seeking to halt its actions.

But all three judges fired back questions about the UI position in this case, which has attracted statewide attention for the millions it could add to an already ballooned $360-plus million project and for the precedent it could set, both legally and for UI building practices.

With a new Legislative session just around the corner, several Republican lawmakers said they plan to launch an investigation into the university’s treatment of contractors when the Legislature convenes Jan. 14.

By that time, they could know more about a pair of lawsuits stemming from the Children’s Hospital project.

Both cases, involving separate contractors, went to arbitration, with a panel earlier this year announcing a $21.5 million award for Modern Piping Inc.

The university recently wrapped up its second closed-door arbitration with Merit Construction over another $13-some million. The panel in that case expects to reach a conclusion early next year, attorneys said.

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Although the UI has paid part of the Modern Piping award, it still owes about $17.6 million, with interest accruing daily as it fights the balance on appeal.

the argument

The UI’s main argument hinges on the issue the appellate court took up Thursday: whether the American Arbitration Association improperly considered the Children’s Hospital quarrel alongside Modern Piping’s dispute over work on the new Hancher Auditorium; and whether the UI’s action to stop it was legal.

But in weighing the UI argument that it never agreed to arbitrate the Children’s Hospital case, Judge Amanda Potterfield asked, “Doesn’t this contract require arbitration?”

To the university’s decision to seek an injunction halting the arbitration, Potterfield said, “AAA has immunity, we agree on that.”

“The reason you are arguing that immunity doesn’t apply here is clear absence of jurisdiction to move forward,” she said, referencing a legal stipulation depriving arbitrators and judges immunity if they had no reason or right to intervene in the first place.

That’s right, Carroll said, reiterating the UI’s oft-repeated contention that although a district court ordered the university to arbitrate a dispute with Modern Piping over Hancher, it never agreed to tack on the Children’s Hospital disagreement.

“Over what authority did they attach that second project?” Carroll asked the judges — arguing the Children’s Hospital project was entirely different in nature and only coincidently involved the same contractor.

Could the arbitration panel, he asked, have considered with its Hancher deliberations a project involving Iowa State University or the Iowa Department of Transportation?

No one answered that hypothetical question, but Des Moines attorney John Templer, representing the American Arbitration Association, rebuffed it, noting the case’s similarities.

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“The contract documents for both projects were virtually identical with respect to the arbitration clauses and some of the other legal provisions,” he said. “There was no need for a separate analysis.”

Modern Piping attorney Jeff Stone said the arbitration panel even noted the time saved by considering the two disputes at once.

“The panel’s ultimate award said we were able to complete this proceeding in nine days instead of 15 days because of substantial overlap of the witnesses, the legal issues, and method of product delivery,” Stone said. “It was very much more efficient to have these two arbitrations in one proceeding.”

required or not?

The university’s interpretation of those identical portions of contract, in fact, hits at the heart of the dispute.

The UI believes “permissive” arbitration language applied, meaning it had to agree to it. Modern Piping thinks arbitration was required.

Chief Judge David Danilson raised the quandary that contention creates for the university, quoting from an original opinion in Modern Piping’s favor requiring a “facially obvious” lack of panel jurisdiction.

“From your description here this morning that there was a dispute whether there was arbitration or not — it was not easily resolved,” he said. “So how can you say that this was facially obvious so that there was a clear absence of jurisdiction around bringing this action?”

‘why are we here?’

As this case has bounced back and forth between the district court, the arbitration panel, and early on the Iowa Supreme Court, which declined to hear the matter.

Judge Richard Doyle asked Carroll whether the Children’s Hospital dispute has been arbitrated and decided.

“Then why are we here?” he asked.

“We’re here because if AAA could not move forward on the Children’s Hospital, and if the actions were void or voidable, then the award related to the Children’s Hospital is invalid,” Carroll replied.

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Stone, the Modern Piping attorney, responded by noting that a decision in Modern Piping’s favor means it will move for a trial on damages resulting for the university’s illegal action against the arbitration panel.

“We’re here because the decision will impact the trial for wrongful damages,” Stone said.

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