Frohberg Elec. Co. v. Grossenburg Implement
297 Neb. 356
| Neb. | 2017Background
- Owner (Grossenburg Implement, NE) contracted with Contractor (Kiehm Construction, MN) on a standard form general contract that included a mediation-then-arbitration dispute resolution scheme in the general conditions.
- Subcontractor (Frohberg Electric, NE) signed a subcontract referencing and acknowledging examination of the general contract and agreeing in Section 11 to be "bound to . . . Contractor by the terms of the General Contract."
- Section E of the subcontract (under the heading "The Contractor Agrees as Follows") stated that if arbitration is provided in the General Contract, disputes between Contractor and Subcontractor "shall be settled by arbitration in the manner provided for in the General Contract."
- Subcontractor sued Owner and Contractor to foreclose a construction lien after a payment dispute; Owner and Contractor moved to compel arbitration under the subcontract/general contract. The district court denied the motion, reasoning Section E applied only to Contractor and that Section 11 was ambiguous.
- The Nebraska Supreme Court reviewed de novo whether the subcontract unambiguously incorporated the general contract’s dispute resolution clause and whether the Federal Arbitration Act (FAA) applied.
Issues
| Issue | Plaintiff's Argument (Frohberg) | Defendant's Argument (Owner/Contractor) | Held |
|---|---|---|---|
| Whether the subcontract unambiguously incorporates the general contract’s arbitration provisions | Section E is under a heading for Contractor and so binds only Contractor; Section 11 is vague and does not show assent to arbitration | Section E’s language is broad and Section 11 binds Subcontractor to the General Contract—both together unambiguously incorporate arbitration | The subcontract unambiguously incorporated the general contract’s arbitration clause; Section E applies to both parties despite its heading |
| Whether mediation is a condition precedent to arbitration under the incorporated terms | Mediation was not required for Subcontractor’s claims (or had been waived) | The general conditions require mediation as a condition precedent to binding arbitration for claims not waived | The general contract’s §15.3.1 requires mediation first; mediation had not been attempted, so it is a prerequisite |
| Whether the FAA governs the arbitration clause | FAA does not apply if contract is purely intrastate or not covered | Subcontract is a services contract between parties from different states, so FAA applies | The subcontract involves interstate commerce (MN vs NE parties providing services) and the FAA applies |
| Remedy when FAA-governed arbitration clause exists but district court refused to compel arbitration | Deny arbitration and proceed in court | Stay judicial proceedings and compel mediation then arbitration per agreement | Court reversed and remanded with directions to stay the action, compel mediation, and if mediation fails, compel arbitration |
Key Cases Cited
- Facilities Cost Mgmt. Group v. Otoe Cty. Sch. Dist., 291 Neb. 642 (Neb. 2015) (contract‑ambiguity and formation principles)
- David Fiala, Ltd. v. Harrison, 290 Neb. 418 (Neb. 2015) (state contract law governs formation questions; FAA equal‑treatment principle noted)
- Wilczewski v. Charter West Nat. Bank, 295 Neb. 254 (Neb. 2016) (arbitrability presented as question of law)
- Southland Corp. v. Keating, 465 U.S. 1 (U.S. 1984) (state law may be used to decide formation so long as it does not conflict with FAA policy)