Opinion
No. 2-890 / 01-2041
Filed January 15, 2003
Appeal from the Iowa District Court for Polk County, D. J. Stovall, Judge.
Randy and Julie Kanis appeal from the district court's order overruling their motion for vacation or modification of an arbitration award. AFFIRMED.
Louis Hockenberg and Jennifer Jaskolka-Brown of Sullivan Ward, P.C., Des Moines, for appellants.
Mark Critelli and Anthony Critelli of Critelli Hubbard, P.C., Des Moines, for appellee.
Heard by Sackett, C.J., and Miller and Eisenhauer, JJ.
Randy and Julie Kanis appeal from the district court's order overruling their motion for vacation of an arbitration award. They contend the district court erred because the arbitrator's ruling is not supported by substantial evidence, and there is evidence of partiality by the arbitrator. We affirm.
I. Background Facts and Proceedings. Randy and Julie Kanis entered into an agreement with T.D. Eilers Construction Co. (Eilers), wherein Eilers agreed to build a custom home for the Kanises. The contract specified the price of the home would be $236,000, which was subject to change based on five "allowance" items. Upon completion of the home and after the Kanises had occupied the house, they were presented with an accounting for the cost of the home of approximately $255,000. Eilers later presented an accounting exceeding $325,000. The Kanises refused to pay more than the $236,000 contract price, plus the extra expense of the allowance items.
After an attempt by Eilers to evict the Kaninses, the parties' dispute was submitted to an arbitrator in January 2001. Eilers contended it was entitled to $337,561 because its initial bid was for a 2400 square foot home, not the 2800 square foot home required by the restrictive covenants governing the property. Although the arbitrator agreed the parties' contract specified a 2800 square foot home, he found the finished home was actually 2933 square feet, and that the Kanises were responsible for the additional 133 square feet at a cost of $84.29 per square foot, totaling $11,210.57.
Eilers also alleged the Kanises were responsible for extra costs in the amount of $40,209.02. These costs included allowance items as well as non-allowance items. The Kanises agreed they were responsible for the extra cost of the allowance items, which totaled nearly half of the $40,209.02 figure. However, they argued the home was purchased under a "fixed-price" contract. The arbitrator found the Kanises showed an interest in the costs of the upgrades, and noted Randy Kanis's involvement in the construction of the home. As a result, the arbitrator found it would be unreasonable for the Kanises to believe they were not required to pay the extra costs for the non-allowance upgrades. The arbitrator awarded Eilers $40,209.02 in excess costs, plus an additional $11,698.71. He then subtracted $12,311.55 from the total for various credits.
The Kanises argued they were entitled to $22,477.08 for defects in the construction. The arbitrator awarded the Kanises $5000 for defects in the kitchen cabinets, but did not award damages for "touch up" costs because the Kanises failed to allow the builder to take care of the problems at its expense. The arbitrator also denied the Kanises an award for a crack and a faulty I-beam because the I-beam construction was approved by the county and the Kanises' expert could only guess as to the cost of repair.
Finally, the arbitrator awarded Eilers four months of rent from the time the Kanises moved into the home until the sale of the home was completed in the amount of $4800. The total award was $281,626.75 to Eilers for the price of the home.
The Kanises filed a motion to amend and enlarge the arbitrator's findings. At that time, they submitted evidence to the arbitrator that the house had been appraised and the appraiser had measured the house at 2824 square feet. The arbitrator denied the motion. Although the arbitrator conceded the 2824 square foot figure was at odds with his finding of 2933 square feet, he found the record was closed.
The Kanises appealed to the district court in March 2001, seeking to reverse the arbitrator's decision. The district court overruled the motion.
II. Scope of Review. Our review of an arbitration decision is for errors at law. $99 Down Payment, Inc. v. Garard, 592 N.W.2d 691, 693 (Iowa 1999). Because our law also indulges every reasonable presumption in favor of the legality of an arbitration award, judicial involvement in arbitration is very limited. Id. at 694. To allow courts to "second guess" an arbitrator by granting a broad scope of judicial review would nullify the very advantages of arbitration. Id. Furthermore, limited judicial review gives the parties what they bargain for in agreeing to binding arbitration, not merely arbitration which is binding if a court agrees with the arbitrator's award. Id. With these principles in mind, we consider the Kanises' claims.
III. Substantial Evidence. Iowa Code section 679A.12(f) (2001) requires the court to vacate an arbitrator's award where it is unsupported by substantial evidence. The Kanises allege the arbitrator's award should be vacated because substantial evidence does not support the award of extra costs for non-allowance items, the award for extra square footage, the award of rent, and the failure to award them for construction defects.
We note that it is not our function to determine whether the arbitrator has resolved the grievance correctly. Postville Comty. School Dist. v. Billmeyer, 548 N.W.2d 558, 562 (Iowa 1996). We may not presume an arbitrator exceeded its authority merely because we disagree with the arbitrator's reasoning. Id. Arbitration does not require the refined quality of justice that would be found in a court proceeding. LCI, Inc. v. Chipman, 572 N.W.2d 158, 163 (Iowa 1997). As our supreme court has stated, "it is no idle coincidence that the words `arbitration' and `arbitrary' are both derived from the same Latin word." Id.
The electrician who worked on the Kanis home testified that every time Randy Kanis requested additional work he informed Randy that the work was "extra." Although the home may have originally been envisioned as a "fixed-price" contract, the Kanises requested work that exceeded the provisions of the original contract. The mutual deviation by the parties can be construed as a modification of the contract. Substantial evidence supports the arbitrator's award of additional costs.
We also find substantial evidence supports the arbitrator's award of additional square footage. Eilers presented evidence that the home was 2933 square feet. The Kanises did not present contradictory evidence. Although an appraisal of the home conducted after the arbitration showed the home was 2824 square feet, the Kanises could have requested an appraisal prior to the arbitration to refute the figure presented by Eilers. Although the Kanises' now request this court modify the arbitrator's award to reflect the 2824 square footage figure, the Kanises' did not file a motion to modify or correct the award pursuant to section 679A.13. Accordingly, it is beyond our power to modify the award. See Gouge v. McNamara, 586 N.W.2d 710, 713 (Iowa Ct.App. 1998) ("[I]ssues which are not pled are not preserved for appellate review."); see also Meier v. Senecaut, 641 N.W.2d 532, 537 (Iowa 2002) ("It is a fundamental doctrine of appellate review that issues must ordinarily be both raised and decided by the district court before we will decide them on appeal.").
The arbitrator's decision to deny the Kanises' claim for construction defects is supported by substantial evidence. The Kanises did not attempt to mitigate their damages by first bringing their concerns to Eilers. Although the arbitrator's reasoning for denying damages for faulty construction of the I-beam may be unusual, we cannot say it is unreasonable. On whole, the evidence in the record is sufficient to support the arbitrator's award.
Finally, the arbitrator's award of rent is supported by substantial evidence. While the Kanises lived in their newly constructed home for four months without payment, Eilers was paying interest on the cost of building the home at a rate of $54.64 per day. The $1200 per month award is justified.
IV. Partiality. Iowa Code section 679A.12(b) requires the district court to vacate an arbitrator's award where there was evident partiality by the arbitrator. The Kanises allege the district court erred in failing to vacate the arbitrator's award because the arbitrator was partial to Eilers.
At the hearing on the motion to vacate the award, Julie Kanis testified as to her belief that the arbitrator was partial to Eilers. Her belief was based on her observation of the arbitrator speaking with the appellant during breaks and after the arbitration. We find this evidence insufficient to support a finding of partiality. See Dacres v. John Deere Ins. Co., 548 N.W.2d 576, 579 (Iowa 1996) (holding appellant's testimony that an arbitrator was unable to assimilate the evidence was insufficient to allow a finding that the arbitrator was not competent to consider the evidence and decide the issues).
We find no error in the district court's order overruling the Kanises' motion to vacate the arbitration award.