Frohberg Elec. Co. v. Grossenburg Implement
297 Neb. 356
| Neb. | 2017Background
- Owner (Grossenburg Implement) contracted with Contractor (Kiehm Construction) using a standard form general contract that contained a mediation-then-arbitration dispute-resolution scheme in its general conditions.
- Subcontractor (Frohberg Electric) entered a subcontract with Contractor to provide electrical services; the subcontract referenced and stated Subcontractor had examined the general contract and made the general contract documents available.
- Subcontract provisions included Section 11 (stating Subcontractor would be bound by the terms of the General Contract) and Section E (under the heading “The Contractor Agrees as Follows”) stating that if arbitration is provided in the General Contract, disputes between Contractor and Subcontractor shall be settled by arbitration as provided in the General Contract.
- A payment dispute arose; Subcontractor recorded a construction lien and sued Owner and Contractor to foreclose the lien and recover payment.
- Owner and Contractor moved to compel arbitration under the subcontract/general contract; the district court denied the motion, holding the subcontract did not bind Subcontractor to the general contract’s dispute-resolution provisions. The owner and contractor appealed.
Issues
| Issue | Plaintiff's Argument (Frohberg) | Defendant's Argument (Owner & Contractor) | Held |
|---|---|---|---|
| Whether the subcontract unambiguously incorporated the general contract’s dispute-resolution provisions (including mediation as a condition precedent to arbitration) | Subcontractor argued it was not bound because Section E appeared under a heading applying only to Contractor and Section 11 was vague as to applicability to Owner vs Contractor disputes | Owner & Contractor argued Section E and Section 11 plainly incorporated the general contract’s ADR provisions so Subcontractor must arbitrate (after mediation) | Court held Section E and Section 11 unambiguously created a mutual arbitration agreement incorporating the general contract’s mediation-then-arbitration scheme and applied to Subcontractor |
| Whether mediation was a condition precedent to arbitration under the incorporated general conditions | Subcontractor argued mediation was not required before arbitration (or that the clause did not bind it) | Owner & Contractor argued the general conditions required mediation first and that mediation had not yet occurred | Court held §15.3.1 of the general conditions requires mediation as a condition precedent to arbitration, and mediation had not been attempted |
| Whether the Federal Arbitration Act (FAA) governed the arbitration clause | Subcontractor contended state contract law should govern or that FAA did not apply | Owner & Contractor argued FAA applied because subcontract involved interstate commerce (parties from different states) | Court held the subcontract involved interstate commerce (services between parties of different states), so the FAA applied and the arbitration agreement is presumed valid and enforceable |
| Whether the district court erred in denying motion to compel arbitration and stay proceedings | Subcontractor maintained the district court correctly found no mutual arbitration agreement | Owner & Contractor argued denial was error given incorporation and FAA | Court reversed: the district court erred; court directed stay and compelled mediation then arbitration per the incorporated general contract terms |
Key Cases Cited
- Facilities Cost Mgmt. Group v. Otoe Cty. Sch. Dist., 291 Neb. 642 (Neb. 2015) (state contract law principles on ambiguity and contract interpretation)
- David Fiala, Ltd. v. Harrison, 290 Neb. 418 (Neb. 2015) (application of FAA where contract involves interstate commerce)
- Wilczewski v. Charter West Nat. Bank, 295 Neb. 254 (Neb. 2016) (arbitrability presents question of law and state law governs formation issues)
- Southland Corp. v. Keating, 465 U.S. 1 (U.S. 1984) (state law governs formation of arbitration agreements so long as it does not conflict with FAA)
- Flores v. Flores-Guerrero, 290 Neb. 248 (Neb. 2015) (appellate courts need not address unnecessary issues)