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Mercy Iowa City’s Bankruptcy and Sale to University of Iowa Face Legal Challenges
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Amid Mercy Iowa City’s bankruptcy proceedings and proposed $20 million sale to the University of Iowa, numerous objections have arisen from various quarters, including unsecured creditors and the U.S. bankruptcy trustee. This article delves into these objections, spotlighting concerns about the hospital’s financial situation and legal maneuvers.

Objections from the U.S. Bankruptcy Trustee

The U.S. bankruptcy trustee, Mary R. Jensen, has voiced serious concerns about Mercy’s handling of the bankruptcy and its proposed sale. Her objections revolve around the hospital’s utilization of legal and financial professionals, citing issues of necessity, appropriateness, and potential violations of bankruptcy laws and Iowa regulations.

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Objections to Professional Appointments

Jensen’s objections extend to Mercy’s choice of legal and financial firms, specifically targeting McDermott Will & Emery, Nyemaster Goode, and H2C Securities. These objections are rooted in conflicts of interest, payment disputes, lack of transparency, and protective measures that Jensen deems objectionable.

The Pre-Bankruptcy Financial Landscape

Mercy Iowa City’s financial difficulties were exacerbated by its Chapter 11 bankruptcy filing in August, culminating in years of financial struggles and operational challenges. Notably, the hospital paid these firms over $7 million in the year leading up to the bankruptcy filing.

Proposed Compensation Plans

Post-bankruptcy, Mercy sought court approval to continue engaging and paying these firms during the proceedings. This included substantial hourly rates, such as $950 per hour for Mercy’s Chief Restructuring Officer Mark E. Toney and $750 per hour for interim Chief Financial Officer James Porter. The proposed compensation structure also outlined success fees, which Trustee Jensen finds inappropriate and lacking oversight.

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Legal Battle Looms

These objections will be deliberated in a bankruptcy court hearing scheduled for Wednesday in Cedar Rapids. The outcome of this hearing could have significant implications for Mercy Iowa City’s bankruptcy proceedings and its proposed sale to the University of Iowa.



McDermott Will & Emery’s Role in Question

The objections raised against McDermott Will & Emery center around conflicts of interest. The law firm represents not only Mercy but also the University of Iowa and Preston Hollow Community Capital in unrelated matters. These connections raise concerns about potential conflicts that have yet to be adequately addressed.

Addressing Concerns with Limited Disclosure

In response to these objections, Felicia Perlman, a McDermott Will & Emery partner, submitted a court declaration. However, the word primarily focuses on billing information rather than clarifying the nature of the firm’s representation of the University of Iowa and Preston Hollow. Despite signed waivers and an ethical wall, Trustee Jensen deems these measures inadequate, highlighting the potential violation of bankruptcy rules.

Questionable Financial Practices

Furthermore, McDermott’s financial practices, including an advance payment retainer, have been scrutinized. The trustee contends that these practices may run afoul of Iowa law and could lead to legal challenges.

Conclusion

As Mercy Iowa City navigates its bankruptcy proceedings and proposed sale, a series of objections have emerged, casting a cloud of uncertainty over the hospital’s financial future. The outcome of the upcoming hearing in Cedar Rapids will determine the course of action in this complex legal battle, which has far-reaching implications for all parties involved.



 

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