The lengthy legal battle between MercyOne and Mercy Iowa City’s liquidation trust rages on in federal bankruptcy court after a judge allowed the trust’s request for $55 million to move forward.
It is the latest development in a bankruptcy court fight that has included nearly 2,500 court filings and spawned numerous “adversary proceedings,” which are similar to lawsuits in other courts.
That is what Mercy Iowa City’s liquidation trust did in late August 2025, filing 148 pages outlining why it believes MercyOne owes the former downtown hospital’s creditors “more than $55 million in damages.”
Mercy Iowa City filed for bankruptcy in 2023.
The University of Iowa initially planned to acquire the hospital before a Texas-based capital investment emerged as the front-runner. In a twist, rights to the downtown hospital ended up in the hands of UI Health Care, which rebranded the facility as the UI Medical Center Downtown in 2024.
MercyOne says case should be dismissed because complaint is ‘a novel’
MercyOne, in September 2025, argued that an “adversary proceeding” should be dismissed because, among other reasons, Mercy Iowa City’s complaint against the Midwest health care system would need to “write a novel” in response.
“[t]he complaint includes unnecessary detail, and excessively recites purported evidence more appropriate for a trial brief or summary judgment motion, after discovery occurs, than a complaint,” the organization said, according to court documents.
Mercy Iowa City’s trust’s claims echo past arguments made in federal court, including that MercyOne failed to abide by the terms of an agreement signed in the 2010s that “exacerbated” issues with the Iowa City campus. The trust argues that “failing to abide” by the agreement constitutes “unjust enrichment” under federal law.
Mercy Iowa City also claims that MercyOne engaged in two years of fraudulent transfers totalling nearly $3.8 million.
MercyOne files motion to dismiss
MercyOne’s attorneys moved to dismiss this case, arguing that responding to the lawsuit would require “their own novel.” They also suggested the court require a more concise complaint from Mercy Iowa City to address their concerns.
The U.S. Bankruptcy Court for the Northern District of Iowa’s Chief Judge, Thad Collins, penned a 26-page response denying MercyOne’s request to dismiss. Collins cites several reasons, including that federal law governing the length and complexity of complaints should be less strictly applied in this instance, as the case involves “the many complicated transactions of running a hospital over many years.”
Collins did not agree with MercyOne’s arguments to dismiss the unjust enrichment and fraudulent transfer accusations. He allowed the case to proceed.
Ryan Hansen covers local government and crime for the Press-Citizen. He can be reached at rhansen@press-citizen.com or on X @ryanhansen01.
This article originally appeared on Iowa City Press-Citizen: Judge allows Mercy Iowa City’s $55M lawsuit to proceed. What to know
Reporting by Ryan Hansen, Iowa City Press-Citizen / Iowa City Press-Citizen
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