Frohberg Elec. Co. v. Grossenburg Implement
297 Neb. 356
| Neb. | 2017Background
- Owner (Grossenburg) entered a standard-form general contract with Contractor (Kiehm) for construction in Nebraska; the general contract’s general conditions included a mandatory mediation-then-arbitration dispute-resolution scheme.
- Contractor subcontracted electrical work to Subcontractor (Frohberg); the subcontract repeatedly referenced the general contract and stated Subcontractor had examined the general contract documents.
- Subcontract Section 11 bound Subcontractor to the "terms of the General Contract." Section E (under the heading "The Contractor Agrees as Follows") provided 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 the lien and obtain payment.
- Owner and Contractor moved to compel arbitration under the subcontract/general contract; the district court denied the motion, reasoning the arbitration clause was not binding on Subcontractor because Section E’s placement under a Contractor-only heading made it unilateral and Section 11 was ambiguous as to applicability to Owner-Subcontractor disputes.
- Owner and Contractor appealed; the Nebraska Supreme Court considered (1) whether the subcontract unambiguously incorporated the general contract’s dispute-resolution provisions and (2) whether the FAA applied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the subcontract unambiguously incorporated the general contract’s arbitration procedures | Frohberg (plaintiff) argued the subcontract did not bind it to the general contract ADR terms because Section E was under a Contractor-only heading and Section 11 was ambiguous | Owner/Contractor argued the subcontract’s text (Section E and Section 11) plainly incorporated the general contract ADR terms and bound Subcontractor | Court held the subcontract unambiguously incorporated the general contract ADR terms; Section E is mutual despite its heading and binds Subcontractor |
| Whether mediation is a condition precedent to arbitration under the incorporated terms | Frohberg argued the ADR clause did not apply or did not require mediation first | Owner/Contractor argued the general conditions require mediation as a prerequisite to binding arbitration | Court held §15.3.1 of the general conditions requires mediation before arbitration; mediation had not been attempted |
| Whether the FAA governs the arbitration provision (interstate commerce) | Owner/Contractor argued the subcontract involved interstate commerce because it was a services contract between parties of different states | Frohberg may have disputed applicability of FAA or its effect | Court held the subcontract involved interstate commerce (Minnesota contractor, Nebraska subcontractor providing services) so the FAA applied, making the arbitration agreement presumptively enforceable |
| Remedy: whether stay and compel arbitration were required | Owner/Contractor sought a stay and order compelling arbitration according to the general contract | Frohberg sought to proceed in court | Court reversed the district court and remanded with directions to stay the action and compel mediation, then arbitration if mediation fails |
Key Cases Cited
- Facilities Cost Mgmt. Group v. Otoe Cty. Sch. Dist., 291 Neb. 642 (Neb. 2015) (on contract interpretation and ambiguity)
- David Fiala, Ltd. v. Harrison, 290 Neb. 418 (Neb. 2015) (state law governs formation questions of arbitration agreements)
- Southland Corp. v. Keating, 465 U.S. 1 (U.S. 1984) (FAA requires state rules not to discriminate against arbitration)
- Kindred Nursing Centers Ltd. v. Clark, 137 S. Ct. 1421 (U.S. 2017) (states must place arbitration agreements on equal footing with other contracts)