Education

University of Iowa cites 'financial hardship' in appeal against $21.5 million payment in Children's Hospital spat

Attorneys announce appeal, request payment stay

The sun hits the University of Iowa Stead Family Children’s Hospital during the first quarter of their football game at Kinnick Stadium in Iowa City on Saturday, Oct. 28, 2017. (Stephen Mally/The Gazette)
The sun hits the University of Iowa Stead Family Children’s Hospital during the first quarter of their football game at Kinnick Stadium in Iowa City on Saturday, Oct. 28, 2017. (Stephen Mally/The Gazette)

IOWA CITY — Despite a court order this week that the University of Iowa end its yearslong refusal to pay a contractor millions for work on a new Children’s Hospital and Hancher Auditorium, the UI has announced plans to appeal the ruling and asked a judge to allow further payment delays.

The university cited its “vital public” service in asking a judge to stay any further payment toward a $21.5 million award in favor of Modern Piping Inc., noting failure to do so would cause the Iowa Board of Regents “financial hardship.”

“Good cause exists to stay the District Court judgment and waive the requirement for a bond,” according to court documents university attorneys filed Friday.

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Courts can require surety bonds from appellants who want to delay payment of awards until their appeals are decided.

“If the Board of Regents prevails on appeal, the use of public funds to purchase a bond will have been to no avail,” according to an argument the UI laid out in court documents. “At the same time, if Modern Piping prevails, the State of Iowa will be bound by the judgment and satisfy the judgment.”

That would be a longtime coming for Modern Piping, one of more than 25 contractors that worked on the 14-story UI Stead Family Children’s Hospital plagued by thousands of design changes, rampant miscommunication, budget overruns and missed deadlines that swelled the project cost from $270.8 million to more than $360 million and delayed its opening by months.

“The arbitration award and court’s ruling validated Modern Piping’s performance on both the Hancher and UIHC projects,” Modern Piping CEO Ken Brown said in a statement. “On these projects, Modern Piping overcame significant obstacles created by the University of Iowa. Modern Piping looks forward to resuming a productive relationship with the University of Iowa and continuing to serve our other clients’ needs.”

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University officials recently reported its Children’s Hospital commitments at $370 million, with contractors demanding more — including from a second locked in litigation. Merit Construction is fighting the university for payment involving four bid packages it says are worth $64.1 million — although much of that is in dispute and headed toward arbitration this fall.

Because the UI has paid some toward the Modern Piping order, while also accruing hundreds of thousands in interest since an arbitration panel first granted the award in February, the owed amount stands at $17.4 million — with $2,321.83 in interest added daily.

The university — which has been battling budget blows in the form of state funding cuts and changing federal regulations — has not provided The Gazette details about where it would get the money to fulfill the Modern Piping payout, should a judge reject its appeal. And it hasn’t produced an amount spent to date on arbitration and attorney fees tied to both the Modern and Merit cases.

But, in court documents filed Friday, it insisted more than one judge got it wrong in ruling that an arbitration panel was authorized to consider the Children’s Hospital project alongside Modern Piping’s Hancher dispute.

“The court did not order Iowa to arbitrate the hospital project,” according to UI attorney George Carroll. “Rather, the panel stated it could invoke jurisdiction under its rules that Iowa never agreed upon. Clearly, the panel never had proper jurisdiction over the UIHC project.”

Carroll’s comments ignore a judge’s assertions in open court in July that the decision over the arbitration panel’s jurisdiction had been decided.

Judge Ian Thornhill, in ruling in Modern Piping’s favor this week, not only affirmed the initial award and months of interest, he found the UI has “no future right to assert backcharges against Modern Piping for anything on the Hancher or UIHC projects.”

In support of its argument against payment, UI attorneys on Friday asserted the State of Iowa is “immune” from judgments and orders being enforced by “execution.” Citing a portion of Iowa Code that excuses the state from such action related to “public property” deemed “necessary and proper for carrying out the general purpose for which such corporation is organized,” attorneys referenced the Board of Regents’ oversight of Iowa’s public universities and the UI Hospitals and Clinics.

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“All of these institutions involve public education in the State of Iowa,” UI attorneys said. “Clearly, the goals of the Board of Regents serve a vital public interest.”

This case appeared headed toward resolution months ago, when UI President Bruce Harreld — according to emails made public through court filings — agreed to an $18.5 million settlement. But those negotiations fell apart, with the university subsequently accusing the arbitration panel of being biased toward Modern Piping.

In an order from Thornhill over the summer, he indicated his next word would be the final say in the prolonged conflict.

“Once the matter is submitted to the court following the July 11, 2018, hearing, the court will take this matter under advisement and issue a final ruling that resolves the pending motions,” Thornhill wrote. “The court will not entertain further requests by the parties for additional time to engage in settlement/mediation efforts.”

In a statement provided to The Gazette on Friday, UI officials expressed disappointment in the court’s decision this week.

“We remain very proud of the work being done in UI Stead Family Children’s Hospital and the care provided by our dedicated staff to patients and families,” the statement read. “We are also very proud of Hancher Auditorium, its strong contributions to the performing arts and the immeasurable value it brings to Iowa.”

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

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