Education

Appeals court rejects key University of Iowa argument in Children's Hospital fight

The ruling does not yet decide fate of $21.5 million in disputed costs

The University of Iowa Stead Family Children’s Hospital is seen from Kinnick Stadium in Iowa City on Friday, Apr. 21, 2017. (Stephen Mally/The Gazette)
The University of Iowa Stead Family Children’s Hospital is seen from Kinnick Stadium in Iowa City on Friday, Apr. 21, 2017. (Stephen Mally/The Gazette)

IOWA CITY — The Iowa Court of Appeals ruled Wednesday against the University of Iowa on one of its main contentions with a $21.5 million award in favor of a contractor that helped build its Stead Family Children’s Hospital.

Wednesday’s decision does not end the university’s chances of prevailing on appeal. A court fight over the merits of the hefty award in favor of Modern Piping Inc. remains with the Iowa Supreme Court, which must decide whether to retain it or send it back to the Court of Appeals.

This week’s appellate court ruling simply found that the American Arbitration Association was immune from the legal action the UI took against it for agreeing to simultaneously arbitrate Modern Piping’s contract disputes for work on both the Children’s Hospital and Hancher Auditorium.

Iowa Assistant Attorney George Carroll, representing the UI, last month told a panel of appellate judges that a clause protecting arbitrators from lawsuits for considering disputes did not apply in this case — that the association didn’t even have jurisdiction to decide on the hospital project.

The judges disagreed.

“Because the doctrine of arbitral immunity applies, the district court properly granted summary judgment in the AAA’s favor,” according to the appellate court.

The association’s alleged lack of jurisdiction over the dispute was the UI’s main argument for reversing the $21.5 million award. If the appellate court sides with a district court that upheld the Modern Piping award, it will further balloon the $360 million 14-story Children’s Hospital price tag.

An investigation by The Gazette found the project’s schedule and budget swelled with rampant change orders, backroom squabbling and misinformation.

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Another contractor, Merit Construction, recently wrapped up its closed-door arbitration with the university over about $13 million of disputed work on the hospital. Attorneys expect a decision on that case early this year.

On the Modern Piping award, the university has paid some but still owes about $17.6 million — with interest accruing daily as it appeals.

The appellate court ruled the UI fell short of showing the association had a “clear absence” of jurisdiction in considering Modern Piping’s hospital gripes along with its Hancher dispute.

Plus, according to the court, the university had another option that didn’t involve the suit against the association. The UI could have moved to stop Modern Piping in its request that the association consider the two projects together.

“The appropriate remedy … would be for the wronged party to seek injunctive relief against the party initiating the arbitration in an appropriate court,” according to the ruling.

Modern Piping attorney Jeff Stone said the next step, following a court ruling in his client’s favor, would be a trial on damages resulting from the university’s action against the arbitration panel.

UI President “Bruce Harreld’s previously reported statement, ‘We never agreed to the original arbitration,’ has been rejected by everyone who has considered this argument,” Stone said. “Instead of paying the $17,693,936.13 due to Modern Piping (or settling for a $1.5 million discount), the University of Iowa chose to fight in court and now faces a trial for millions of dollars in damages resulting from the wrongful injunction.”

A UI spokeswoman said Wednesday that “we are currently reviewing the opinion.”

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

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