Frohberg Elec. Co. v. Grossenburg Implement
297 Neb. 356
| Neb. | 2017Background
- Grossenburg Implement (Owner) contracted with Kiehm Construction (Contractor, Minnesota) on a standard form general contract that contained mediation-then-arbitration provisions in its general conditions.
- Frohberg Electric (Subcontractor, Nebraska) signed a subcontract to provide electrical services; the subcontract referenced and acknowledged availability of the general contract documents.
- Subcontract Section 11 obliged the Subcontractor to be "bound to . . . Contractor by the terms of the General Contract." Section E (under the heading "The Contractor Agrees as Follows") stated that disputes between Contractor and Subcontractor "shall be settled by arbitration in the manner provided for in the General Contract."
- A payment dispute arose; Subcontractor recorded a construction lien and sued Owner and Contractor in district court to foreclose and recover payment.
- Owner and Contractor moved to compel arbitration under the subcontract/general contract; the district court denied the motion, finding the subcontract did not bind Subcontractor to the general contract’s dispute-resolution clauses.
- Owner and Contractor appealed; the Nebraska Supreme Court reviewed whether the subcontract unambiguously incorporated the general contract’s arbitration 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 incorporated the general contract’s dispute-resolution (mediation-then-arbitration) provisions | The subcontract’s headings and wording show Section E applied only to Contractor; Subcontractor did not agree to general contract ADR provisions | Section 11 and Section E unambiguously incorporate the general contract terms; Section E’s plain language binds both parties despite its heading | The subcontract unambiguously incorporated the general contract’s ADR provisions; Section E is mutual and binds Subcontractor |
| Whether mediation was a condition precedent to arbitration under the incorporated terms | Mediation need not be exhausted because Subcontractor’s claims allegedly fall outside waived categories | The general contract’s §15.3.1 requires mediation for all claims arising out of the contract unless waived; no final payment/waiver occurred | Mediation is a condition precedent; mediation had not been attempted, so arbitration cannot proceed until mediation is tried |
| Whether the FAA governs the arbitration clause | FAA does not apply or is inapplicable to the subcontract | The subcontract is a services contract between parties of different states (Minnesota/ Nebraska), so it involves interstate commerce and triggers the FAA | FAA applies; the arbitration agreement is governed by the FAA and is presumptively enforceable |
| Remedy: whether district court should have compelled arbitration and stayed the action | Deny motion; litigation may proceed | Compel mediation then arbitration per agreement and stay litigation | Reversed: district court erred; remanded with directions to stay the action and compel mediation followed by arbitration if mediation fails |
Key Cases Cited
- Facilities Cost Mgmt. Group v. Otoe Cty. Sch. Dist., 291 Neb. 642 (2015) (state contract law guides whether an arbitration agreement was formed)
- David Fiala, Ltd. v. Harrison, 290 Neb. 418 (2015) (FAA applies only where contract involves interstate commerce; state formation rules apply absent conflict with FAA)
- Southland Corp. v. Keating, 465 U.S. 1 (1984) (states may apply contract law to formation questions so long as they do not disfavor arbitration)
- Kindred Nursing Centers Ltd. v. Clark, 137 S. Ct. 1421 (2017) (states must place arbitration agreements on equal footing with other contracts)