Iowa Supreme Court rules for University of Iowa, reverses $12.8 million payment to contractor

The Iowa Supreme Court recently sided with the University of Iowa, reversing a lower court decision and nullifying a decision that would have forced the university to pay nearly $12.8 million in restitution.

The state's high court ruled on April 26 that a previous jury decision awarding Cedar Rapids-based Modern Piping, Inc. an eight-figure restitution payment was void. The court did uphold a second decision, which awarded the company less than $22,000.

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Arbitration awards company $21.5 million for university projects

Modern Piping is a mechanical contractor that was hired as one of multiple parties to work on the construction of the Stead Family Children's Hospital in the mid-2010s. The university also contracted the company to work on the construction of the Hancher Auditorium during the same time frame.

In 2015, the company filed a claim with the American Arbitration Association that claimed construction-related delays at Hancher had amounted to approximately $1.6 million in added costs. The university was open to arbitrating the claim.

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Within a year, Modern Piping amended its claim and added that similar delays with the children's hospital had cost it more than $8 million. The university did not consent to arbitrating both of those together and filed a permanent injunction to halt Modern Piping's claim

That injunction stood for nearly nine months as the university began occupying parts of the hospital while construction continued.

In January 2017, the court ruled that the University of Iowa's injunction was improperly granted and was therefore dissolved.

Modern Piping was later awarded $21.5 million in arbitration for the construction delays.

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Court initially granted company additional $12.8 million

Modern Piping was awarded a $28 million mechanical contract for the construction of the children's hospital.

The company claimed the improper injunction allowed the university to take "advantage" of its contract with construction companies by occupying the hospital early.

Modern Piping sought a jury trial that was held in October 2022, according to court documents.

During that trial, Modern Piping had an economic expert testify. The person accused the University of Iowa of generating $12.8 million in revenue because they were able to see patients eight months sooner than expected when they began occupying the building in June of 2016. Construction of the hospital wasn't fully complete until May 2017.

The expert said the University of Iowa tried to move "into the unfinished Children’s Hospital without having to first arbitrate a partial occupancy agreement."

The expert said because the university moved in early it "prevented Modern Piping from arbitrating the partial occupancy dispute like it normally would have done, causing lost contract damages to Modern Piping and benefiting the university," according to court documents. He said had Modern Piping been able to negotiate a contract with the University of Iowa, the company would've sought a bid of $2.5 million for "the additional risk associated with completing its work while the University was partially occupying the Children’s Hospital."

The jury determined that the University of Iowa was "unjustly enriched due to the wrongful injunction” for nearly $12.8 million and that “the reasonable and necessary costs, expenses, and attorney’s fees expended by Modern Piping to dissolve the wrongful injunction” was nearly $21.8 million.

The University of Iowa appealed that decision, and the State Supreme Court ultimately reversed the jury's decision.

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Ruling delivers critique of company's ability to make claims

The temporary injunction was issued in 2016 based on a flawed ruling on the district court level, the court said in its opinion. But it was related to the arbitration talks, not to early occupancy.

"Modern Piping argues that the University used the temporary injunction to take partial occupancy of the Children’s Hospital without entering into the separate agreement with Modern Piping required by the general conditions," the decision read. "But the temporary injunction addressed only those claims Modern Piping had already submitted for arbitration, which did not include the partial occupancy issue."

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Thus, the court ruled that the wrongful injunction did not entitle Modern Piping to "disgorgements" — a legal term meaning remedy by surrendering profits — of the university-affiliated hospital's profits during the injunction period. That was the basis of the nearly $12.8 million award provided by the jury in 2022.

"We believe Modern Piping led the district court astray when it convinced the court that its claim for wrongful injunction entitled it to recover restitution in the form of a broad-reaching unjust enrichment claim, and restitution should be measured as the disgorgement of the benefit provided to the University," Justice Dana Oxley wrote in the opinion.

"Under no set of circumstances would a mechanical contractor be entitled to the profits of the business occupying the building it is constructing," she later wrote.

Ryan Hansen covers local government and crime for the Press-Citizen. He can be reached at rhansen@press-citizen.com or on X, formerly known as Twitter, @ryanhansen01.

This article originally appeared on Iowa City Press-Citizen: Court rules for University of Iowa, reverses $13M due to contractor