Frohberg Elec. Co. v. Grossenburg Implement
297 Neb. 356
| Neb. | 2017Background
- Grossenburg Implement (Owner) contracted with Kiehm Construction (Contractor, MN) using a standard form general contract that included a mandatory dispute-resolution scheme: mediation as a condition precedent to binding arbitration under the general conditions.
- Frohberg Electric (Subcontractor, NE) entered a subcontract with Contractor to provide electrical services; the subcontract referenced and stated the parties had examined the general contract and made it available.
- Subcontract provisions included Section 11 (Subcontractor agrees to be bound by terms of the General Contract) and Section E (under the heading “The Contractor Agrees as Follows”), which stated that if arbitration is provided for in the General Contract, disputes between Contractor and Subcontractor shall be settled by arbitration in the manner provided in the General Contract.
- A payment dispute arose; Subcontractor filed suit and obtained a construction lien. Owner and Contractor moved to dismiss or, alternatively, to compel arbitration per the subcontract and general contract.
- The district court denied the motion, holding Section E’s placement under a Contractor heading meant it bound only Contractor and that Section 11 was too vague to incorporate arbitration between Subcontractor and Owner/Contractor. 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 arbitration/mediation scheme | Subcontract does not bind Subcontractor to arbitration because Section E appears under a Contractor-only heading; Section 11 is vague as to whom it binds | Subcontract unambiguously incorporates the general contract: Section E and Section 11 together bind Subcontractor to the general contract’s ADR provisions | Court held the subcontract unambiguously incorporated the general contract’s mediation-then-arbitration scheme; Section E applies to both parties despite its heading |
| Whether the FAA applies | FAA should not control if no interstate commerce or if state law governs formation | Subcontract is for services between parties from different states, thus involves interstate commerce and triggers the FAA | Court held the subcontract involved interstate commerce (MN contractor, NE subcontractor) so the FAA applies, making the arbitration agreement enforceable |
| Whether mediation was required before arbitration | Mediation not attempted; action should proceed in court | The general contract conditions require mediation as condition precedent to arbitration; parties must mediate first | Court held mediation is a required condition precedent under the incorporated general conditions; because mediation had not occurred, the case must be stayed pending mediation and then arbitration if mediation fails |
| Remedy: whether court should compel arbitration and stay litigation | Litigation should proceed because no valid arbitration agreement | Motion to compel arbitration should be granted and action stayed pending mediation/arbitration according to the incorporated terms | Court reversed district court, ordered stay and compelled mediation then arbitration per the general contract |
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 agreement; FAA equal-treatment principle applies)
- 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) (FAA policy and interaction with state contract law)