Iowa Supreme Court Overturns $12.8 Million Restitution Order Against University

The Iowa Supreme Court recently ruled with the University of Iowa, overturning a lower court judgment and nullifying one that would have required the university to pay over $12.8 million in restitution.

On April 26, the state’s supreme court overturned an earlier jury ruling that awarded Cedar Rapids-based Modern Piping, Inc. an eight-figure restitution payout. The court upheld a second decision that rewarded the corporation with less than $22,000.

Arbitration Awards the Corporation $21.5 Million for University Projects

Modern Piping is a mechanical contractor who was hired as part of a team to build the Stead Family Children’s Hospital in the mid-2010s. The university also hired the business to build the Hancher Auditorium at the same time period.

In 2015, the firm filed a lawsuit with the American Arbitration Association, claiming that construction delays at Hancher resulted in additional expenditures of around $1.6 million. The university was willing to arbitrate the matter. Within a year, Modern Piping revised its claim, stating that comparable delays at the children’s hospital had cost them more than $8 million. The university refused to arbitrate both cases together and filed a permanent injunction to stop Modern Piping’s claim.

That injunction stood for over nine months, while the university began occupying parts of the hospital while work was underway. In January 2017, the court found that the University of Iowa’s injunction was illegally granted and hence dissolved.

Modern Piping was eventually granted $21.5 million in arbitration for construction delays.

Court Initially Gave the Corporation an Additional $12.8 Million

Modern Piping was given a $28 million mechanical contract to construct the children’s hospital.

The corporation alleged that the unlawful injunction allowed the university to “advantage” of its contract with construction contractors by taking over the hospital early. Modern Piping requested a jury trial, which was convened in October 2022, according to court filings.

During the trial, Modern Piping called an economic expert to testify. The individual accused the University of Iowa of collecting $12.8 million in revenue because they were allowed to see patients eight months earlier than anticipated when they began occupying the building in June 2016. The hospital’s construction was not completed until May 2017.

The expert stated that the University of Iowa attempted to move “into the unfinished Children’s Hospital without first arbitrating a partial occupancy agreement.”

According to court filings, the expert stated that because the institution moved in early, it “prevented Modern Piping from arbitrating the partial occupancy dispute as it normally would have done,” resulting in missed contract damages for Modern Piping and benefits for the university. He stated that had Modern Piping has been allowed to negotiate a contract with the University of Iowa, the company would have requested a quote 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 ruled that the University of Iowa was “unjustly enriched due to the wrongful injunction” for over $12.8 million, and that “the reasonable and necessary costs, expenses, and attorney’s fees expended by Modern Piping to dissolve the wrongful injunction” cost nearly $21.8 million.

The University of Iowa appealed, and the State Supreme Court eventually reversed the jury’s decision.

Ruling Critiques the Company’s Ability to Make Claims

The temporary injunction was given in 2016 as a result of a defective district court verdict, according to the court’s opinion. However, it was related to the arbitration proceedings, not to the 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 ruling stated. ”

But the temporary injunction addressed only those claims Modern Piping had already submitted for arbitration, which did not include the partial occupancy issue.” As a result, the court determined that the illegal injunction did not entitle Modern Piping to “disgorgements” — a legal phrase implying a remedy by surrendering profits — of the university-affiliated hospital’s profits during the injunction period. That was the basis for the jury’s approximately $12.8 million award 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,” the opinion by Justice Dana Oxley stated.

“Under no set of circumstances would a mechanical contractor be entitled to the profits of the business occupying the building it is constructing,” she said in a subsequent letter.