Iowa appeals court rules against UI argument in Modern Piping dispute

Months after the UI and Modern Piping dispute over work on Hancher and the Stead Family Children’s Hospital began, the Iowa Court of Appeals has ruled the UI did not provide enough evidence to take away the American Arbitration Association’s arbitral immunity.

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Iowa appeals court rules against UI argument in Modern Piping dispute

The UI Stead Family Children’s Hospital is seen in September 2018.

The UI Stead Family Children’s Hospital is seen in September 2018.

Katina Zentz

The UI Stead Family Children’s Hospital is seen in September 2018.

Katina Zentz

Katina Zentz

The UI Stead Family Children’s Hospital is seen in September 2018.

Kelsey Harrell, News Reporter

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The Iowa Court of Appeals on Jan. 9 ruled that the University of Iowa did not show there is a clear absence of jurisdiction required to strip the American Arbitration Association of its arbitral immunity in the university’s case against Modern Piping.

The appellate court determined the 6th District Court had properly ruled in the association’s favor when the UI moved for summary judgment to prohibit the group from judging a contract dispute with Modern Piping.

The decision comes months after the arbitration of the UI and Modern Piping dispute over work done on Hancher and the UI Stead Family Children’s Hospital.

RELATED: UI, Modern Piping in court over Hancher and Stead Family Children’s Hospital projects

The settlement over the contract dispute began when the UI and Modern Piping were unable to negotiate an agreement over a change order for the Hancher project. The arbitration issues over the Hancher and hospital projects were then combined to become one.

Modern Piping has previously said in a statement that a cardinal change was made to the Children’s Hospital project, meaning that the company was no longer working on the same project it had originally bid on.

Modern Piping had not provided the “as-built” plans that was specified in the contract, UI President Bruce Harreld said at a September state Board of Regents’ meeting. The UI refuses to accept the deals that will threaten state assets and people of Iowa, so negotiation attempts with Modern Piping have failed, he said.

The company then presented the hospital design to the design professional for review, the design professional determined the project would be arbitrated, Modern Piping CEO Ken Brown said in an interview with The Daily Iowan in September.

In September, the UI and Modern Piping were negotiating a payment of approximately $17 million for labor inefficiencies and change-order requests. The $17 million would also cover Modern Piping’s arbitration cost and attorney fees, Harreld said at the regents’ September meeting.

RELATED: Board of Regents discusses UIHC audit, comments on Modern Piping allegations 

The Iowa Supreme Court still has to rule on the money in dispute.

The UI alleged the American Arbitration Association did not have jurisdiction to arbitrate the dispute and therefore the group does not have arbitral immunity, according to the appellate court’s Jan. 9 ruling.

The doctrine of arbitral immunity makes arbitrators immune from liability for acts performed in their arbitral capacity. Courts have determined that arbitral immunity applies to arbitrators unless there is a clear absence of jurisdiction.

The UI alleges there was not a court order to determine whether the American Arbitration Association had jurisdiction to arbitrate the dispute with Modern Piping, arguing this indicates a clear absence of jurisdiction.

The UI alleges the District Court erred in determining the doctrine of arbitration immunity prevents the university from prohibiting the American Arbitration Association from arbitrating the Modern Piping dispute.

“Unless the parties clearly and unmistakably provide otherwise, the question of arbitrability is to be decided by a court not by an arbitrator,” Judge Richard Doyle wrote in the ruling.

The association’s arbitral immunity prevents the UI from enjoining the group. Because the arbitration immunity applies to the group, the appellate court ruled that the District Court properly ruled in granting summary judgment in the association’s favor.

Harreld has previously said the UI has paid Modern Piping $57 million as the general contractor for both projects. The UI does not accept Modern Piping’s claims for additional payment to be valid, he said.

“It started out as a small little issue on Hancher, and then they added the Children’s Hospital to it, and it started growing up, and growing, and growing, and growing,” Harreld said in an interview with The Daily Iowan in October. “And it started as a couple hundred thousand dollars, and now it’s in the millions, and I think the process is really broken. That’s what we’ve asked the Supreme Court, the state of Iowa, to adjudicate on, the process and how we got to where we are.”

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