Frohberg Elec. Co. v. Grossenburg Implement
297 Neb. 356
| Neb. | 2017Background
- Owner (Grossenburg) contracted with Contractor (Kiehm) on a standard form general contract that included a mediation-then-arbitration dispute resolution scheme in the general conditions.
- Contractor subcontracted electrical work to Frohberg (Subcontractor); the subcontract referenced and stated Subcontractor had examined the general contract and incorporated its terms in several places, including Section 11 and Section E.
- Section E (placed under the heading "The Contractor Agrees as Follows") stated that if the general contract provided for arbitration, any dispute 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 lien and sued Owner and Contractor in district court. Owner and Contractor moved to compel arbitration under the subcontract/general contract.
- The district court denied the motion, reasoning the arbitration provision was not binding on Subcontractor (focusing on the subcontract’s heading placing Section E under Contractor’s promises) and that Section 11 was vague about whether it bound Subcontractor to the general contract’s dispute provisions.
- Owner and Contractor appealed; the Nebraska Supreme Court considered whether the subcontract unambiguously incorporated the general contract’s arbitration procedure and whether the Federal Arbitration Act (FAA) applied.
Issues
| Issue | Plaintiff's Argument (Frohberg) | Defendant's Argument (Owner/Contractor) | Held |
|---|---|---|---|
| Whether subcontract unambiguously incorporated general contract arbitration clause | Section E is under a heading for Contractor only, so Subcontractor did not agree to arbitration | Section E’s plain language binds disputes between Contractor and Subcontractor to arbitration; headings do not limit the mutual obligation | Court: Section E is unambiguous and mutual; Subcontractor is bound to arbitrate disputes with Contractor per the general contract |
| Whether mediation is a condition precedent to arbitration | Since mediation was not attempted, arbitration should not be compelled | The general contract requires mediation before binding arbitration; that process is incorporated | Court: Mediation is required first; because mediation was not attempted, parties must mediate then arbitrate if mediation fails |
| Whether the FAA governs the arbitration agreement | (Implicit) State law should govern formation; FAA not necessarily applicable | The subcontract is for services between parties in different states, so the FAA applies | Court: FAA applies (contract involves interstate commerce) and the arbitration agreement is enforceable under the FAA |
| Whether district court erred in denying motion to compel arbitration | Denial was correct because subcontract did not bind Subcontractor | District court misread the subcontract and failed to enforce its arbitration incorporation | Court: Reversed and remanded with directions to stay the action and compel mediation then arbitration per the agreement |
Key Cases Cited
- Facilities Cost Mgmt. Group v. Otoe Cty. Sch. Dist., 291 Neb. 642 (Neb. 2015) (contract interpretation and ambiguity are questions of law)
- David Fiala, Ltd. v. Harrison, 290 Neb. 418 (Neb. 2015) (state contract law governs formation of arbitration agreements absent FAA preemption)
- Wilczewski v. Charter West Nat. Bank, 295 Neb. 254 (Neb. 2016) (arbitrability presents a question of law)
- Southland Corp. v. Keating, 465 U.S. 1 (U.S. 1984) (states must treat arbitration agreements on equal footing with other contracts)
- Kindred Nursing Centers Ltd. v. Clark, 137 S. Ct. 1421 (U.S. 2017) (federal policy favors arbitration; courts must avoid state rules that discriminate against arbitration)