MercyOne, the former managing partner of the bankrupt Mercy Iowa City, plans to appeal a judge’s decision earlier this month to confirm a liquidation plan for the insolvent community hospital that leaves the Des Moines health care system vulnerable to lawsuits.
“MercyOne has become a potential scapegoat for the impact of the bankruptcy, while others have received full releases,” according to MercyOne spokesman Todd Mizener.
Reiterating some of the arguments rejected by Chief Bankruptcy Judge Thad Collins in his June 7 order confirming the liquidation plan, MercyOne attorneys filed a notice of appeal Monday and a request the court pause implementation of the plan.
“MercyOne will suffer irreparable harm absent a stay pending appeal,” according to the health care system, defining irreparable harm is “an injury that cannot be redressed by a legal or equitable remedy following trial.”
MercyOne’s primary objection centers on the liquidation plan’s broad “releases” from liability granted to 18 categories of people and entities — encompassing thousands.
In seeking a stay, MercyOne attorneys said they don’t object to releases for creditors to which the bankrupt hospital owes money; secured bondholders due tens of millions; pensioners reliant on retirement funds; the Mercy Iowa City foundation; and its affiliated Sisters of Mercy organization.
But MercyOne does take issue with releases for “remote” parties — including unnamed current and former directors, managers, officers, affiliates, employees, agents, financial advisers, attorneys, consultants, advisers and other professionals.
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“The vast majority have not appeared in these Chapter 11 cases; they are being released without doing a thing,” according to the MercyOne filing.
MercyOne remains the sole party not released and thus is vulnerable to a lawsuit for its oversight of the 150-year-old Mercy Iowa City in the years leading up to the bankruptcy.
In seeking a stay while it prepares an appeal, MercyOne hearkened back to arguments and testimony from a May hearing that preceded the court’s plan confirmation — arguments that the judge rejected.
Specifically, MercyOne re-aired testimony from Mark Toney — chief restructuring officer for Mercy Iowa City — and his assertions that releases were an essential part of the compromise that brought everyone, except MercyOne, on board with the plan.
Although Toney spoke generally about “releases” being necessary, MercyOne attorneys in their court filings said he never testified to the import of the “remote” releases and why they would be necessary to garner support from more involved stakeholders — like the bondholders, creditors and pensioners, for example.
“He could not identify any party who told him that it would walk away from the (plan) if the remote non-debtor parties were not released,” according to MercyOne attorneys. “He did not discuss this subject coming up at all. Constituents, including the unsecured creditor committee and bondholders, were present in the courtroom at the confirmation hearing, yet did not call a witness who testified that these parties would abandon the (plan) if the remote non-debtor releases were removed.”
Toney testified that no in-depth analysis was done to determine how much could be recovered from “remote” parties through litigation.
“This meant that he was entirely ignorant as to what claims were being left on the table,” according to MercyOne’s request. “Again, it defies belief that in this crowd of hundreds, if not thousands, of parties, there would not be some who received preferential or fraudulent transfers, the recovery of which would enhance the recoveries for those, like MercyOne, who will not presently be paid in full on their claim.”
In arguing MercyOne could face irreparable harm if singularly exposed to litigation, attorneys suggested leaving others vulnerable as well could benefit the public — including through the prospect of more money available to pay back creditors.
“A stay will ensure that (Mercy Iowa City) as well as non-debtor parties are held accountable for their post-petition and post-confirmation conduct, while preserving the rights and remedies of parties in interest,” according to MercyOne, arguing it has a strong chance of winning its appeal.
MercyOne — a “health care ministry” providing management and affiliation services to hospitals — first entered into a management and affiliation arrangement with Mercy Iowa City in 2016. At that time, Mercy Iowa City was facing “significant challenges,” according to MercyOne spokesman Mizener.
“Our services agreement with Mercy Iowa City resulted in improved financial performance for Mercy Iowa City,” he said.
Public documents show Mercy Iowa City’s annual operating losses dipped and then improved under MercyOne, from $24.4 million in the red in 2016 and $37.1 million in the red in 2017, to a $3.4 million loss in 2018.
MercyOne over the years charged Mercy Iowa City a management service fee that increased from $76,956 in 2017 to $923,474 in 2018 to eventually more than $2 million 2021 and 2022, according to public records.
Through the pandemic and its fallout, Mercy Iowa City’s financial position further declined — with total assets waning from $283.9 million in 2021 to $229.2 in 2022, a period of time during which MercyOne advised Mercy Iowa City to pursue a different partnership or affiliation given “the pandemic and resulting financial challenges.”
After Mercy Iowa City’s board agreed, MercyOne helped the hospital “develop the process for identifying and assessing potential partners,“ according to Mizener.
“Recognizing Mercy Iowa City would need to invest in advisers for this process, MercyOne reduced its management fee by half and offered more than once to end the agreement with Mercy Iowa City,” Mizener said. “That request was declined several times by Mercy Iowa City.”
Just months before Mercy Iowa City filed for bankruptcy, the two parties mutually agreed to cut ties in March 2023.
“MercyOne consistently acted in Mercy Iowa City’s best interests and met its contractual obligations, even going above and beyond them,” according to a statement provided by Mizener. “There is no basis for any claim against MercyOne. Pursuing any claim would only waste the remaining funds available to creditors.”
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“MercyOne has become a potential scapegoat for the impact of the bankruptcy, while others have received full releases,” according to MercyOne spokesman Todd Mizener.
Reiterating some of the arguments rejected by Chief Bankruptcy Judge Thad Collins in his June 7 order confirming the liquidation plan, MercyOne attorneys filed a notice of appeal Monday and a request the court pause implementation of the plan.
“MercyOne will suffer irreparable harm absent a stay pending appeal,” according to the health care system, defining irreparable harm is “an injury that cannot be redressed by a legal or equitable remedy following trial.”
MercyOne’s primary objection centers on the liquidation plan’s broad “releases” from liability granted to 18 categories of people and entities — encompassing thousands.
In seeking a stay, MercyOne attorneys said they don’t object to releases for creditors to which the bankrupt hospital owes money; secured bondholders due tens of millions; pensioners reliant on retirement funds; the Mercy Iowa City foundation; and its affiliated Sisters of Mercy organization.
But MercyOne does take issue with releases for “remote” parties — including unnamed current and former directors, managers, officers, affiliates, employees, agents, financial advisers, attorneys, consultants, advisers and other professionals.
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“The vast majority have not appeared in these Chapter 11 cases; they are being released without doing a thing,” according to the MercyOne filing.
MercyOne remains the sole party not released and thus is vulnerable to a lawsuit for its oversight of the 150-year-old Mercy Iowa City in the years leading up to the bankruptcy.
Remaking the case
In seeking a stay while it prepares an appeal, MercyOne hearkened back to arguments and testimony from a May hearing that preceded the court’s plan confirmation — arguments that the judge rejected.
Specifically, MercyOne re-aired testimony from Mark Toney — chief restructuring officer for Mercy Iowa City — and his assertions that releases were an essential part of the compromise that brought everyone, except MercyOne, on board with the plan.
Although Toney spoke generally about “releases” being necessary, MercyOne attorneys in their court filings said he never testified to the import of the “remote” releases and why they would be necessary to garner support from more involved stakeholders — like the bondholders, creditors and pensioners, for example.
“He could not identify any party who told him that it would walk away from the (plan) if the remote non-debtor parties were not released,” according to MercyOne attorneys. “He did not discuss this subject coming up at all. Constituents, including the unsecured creditor committee and bondholders, were present in the courtroom at the confirmation hearing, yet did not call a witness who testified that these parties would abandon the (plan) if the remote non-debtor releases were removed.”
Toney testified that no in-depth analysis was done to determine how much could be recovered from “remote” parties through litigation.
“This meant that he was entirely ignorant as to what claims were being left on the table,” according to MercyOne’s request. “Again, it defies belief that in this crowd of hundreds, if not thousands, of parties, there would not be some who received preferential or fraudulent transfers, the recovery of which would enhance the recoveries for those, like MercyOne, who will not presently be paid in full on their claim.”
In arguing MercyOne could face irreparable harm if singularly exposed to litigation, attorneys suggested leaving others vulnerable as well could benefit the public — including through the prospect of more money available to pay back creditors.
“A stay will ensure that (Mercy Iowa City) as well as non-debtor parties are held accountable for their post-petition and post-confirmation conduct, while preserving the rights and remedies of parties in interest,” according to MercyOne, arguing it has a strong chance of winning its appeal.
‘Potential scapegoat’
MercyOne — a “health care ministry” providing management and affiliation services to hospitals — first entered into a management and affiliation arrangement with Mercy Iowa City in 2016. At that time, Mercy Iowa City was facing “significant challenges,” according to MercyOne spokesman Mizener.
“Our services agreement with Mercy Iowa City resulted in improved financial performance for Mercy Iowa City,” he said.
Public documents show Mercy Iowa City’s annual operating losses dipped and then improved under MercyOne, from $24.4 million in the red in 2016 and $37.1 million in the red in 2017, to a $3.4 million loss in 2018.
MercyOne over the years charged Mercy Iowa City a management service fee that increased from $76,956 in 2017 to $923,474 in 2018 to eventually more than $2 million 2021 and 2022, according to public records.
Through the pandemic and its fallout, Mercy Iowa City’s financial position further declined — with total assets waning from $283.9 million in 2021 to $229.2 in 2022, a period of time during which MercyOne advised Mercy Iowa City to pursue a different partnership or affiliation given “the pandemic and resulting financial challenges.”
After Mercy Iowa City’s board agreed, MercyOne helped the hospital “develop the process for identifying and assessing potential partners,“ according to Mizener.
“Recognizing Mercy Iowa City would need to invest in advisers for this process, MercyOne reduced its management fee by half and offered more than once to end the agreement with Mercy Iowa City,” Mizener said. “That request was declined several times by Mercy Iowa City.”
Just months before Mercy Iowa City filed for bankruptcy, the two parties mutually agreed to cut ties in March 2023.
“MercyOne consistently acted in Mercy Iowa City’s best interests and met its contractual obligations, even going above and beyond them,” according to a statement provided by Mizener. “There is no basis for any claim against MercyOne. Pursuing any claim would only waste the remaining funds available to creditors.”
MercyOne appealing Mercy Iowa City bankruptcy plan that leaves them exposed
MercyOne — former managing partner of the bankrupt Mercy Iowa City — plans to appeal a judge’s decision earlier this month to confirm a Chapter 11 liquidation plan for the insolvent community hospital that leaves MercyOne vulnerable to lawsuits.
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