Frohberg Elec. Co. v. Grossenburg Implement
297 Neb. 356
| Neb. | 2017Background
- Owner (Grossenburg) contracted with Contractor (Kiehm) under a standard form general contract that included mandatory mediation then arbitration for disputes.
- Contractor subcontracted electrical work to Subcontractor (Frohberg); the subcontract referenced and stated the subcontractor had examined the general contract and made the general contract documents available.
- Subcontract contains Section 11 (Subcontractor agrees to be bound by terms of the General Contract) and Section E (under heading “The Contractor Agrees as Follows”) stating disputes between Contractor and Subcontractor shall be settled by arbitration in the manner provided in the General Contract.
- A payment dispute arose; Subcontractor filed a 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, finding Section E applied only to Contractor because of its heading and that Section 11 was too vague to bind Subcontractor to arbitration with Owner.
- The Nebraska Supreme Court granted review and reversed, holding the subcontract unambiguously incorporated the general contract’s dispute resolution (mediation as a condition precedent, then arbitration) and that the FAA applied because the subcontract was between parties in different states.
Issues
| Issue | Plaintiff's Argument (Frohberg) | Defendant's Argument (Owner/Contractor) | Held |
|---|---|---|---|
| Whether the subcontract incorporated the general contract’s ADR clauses so Subcontractor must arbitrate | Subcontractor argued the subcontract’s Section E and Section 11 did not bind Subcontractor to arbitration (Section E was only under Contractor heading; Section 11 was vague) | Owner/Contractor argued Sections E and 11 unambiguously incorporated the general contract’s mediation/arbitration terms, binding Subcontractor | Held: The subcontract unambiguously incorporated the general contract ADR provisions; Section E’s language is mutual despite heading, so disputes between Contractor and Subcontractor are subject to mediation then arbitration |
| Whether mediation was a condition precedent to arbitration | Subcontractor contended arbitration could not be compelled because mediation was not attempted; characterization of whether mediation applied to these claims was contested | Owner/Contractor argued the general conditions required mediation first and that the subcontract imported that requirement | Held: The general contract’s §15.3.1 requires mediation as condition precedent; because mediation had not occurred, parties must attempt mediation before arbitration |
| Whether the Federal Arbitration Act (FAA) governs the arbitration clause | Subcontractor argued state law should control or FAA did not apply | Owner/Contractor argued FAA applied because subcontract involved interstate commerce (parties from different states) | Held: FAA applies (services contract between parties in different states); arbitration agreement governed by FAA and is enforceable; district court should have stayed the action and compelled ADR per agreement |
| Whether the district court properly construed contract headings in limiting Section E | Subcontractor relied on the document’s headings to argue Section E only bound Contractor | Owner/Contractor argued headings do not override clear reciprocal language | Held: Court rejected restrictive reading based on headings; plain reciprocal language controlled and headings were not determinative |
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)
- Wilczewski v. Charter West Nat. Bank, 295 Neb. 254 (Neb. 2016) (arbitrability is a question of law reviewed de novo)
- David Fiala, Ltd. v. Harrison, 290 Neb. 418 (Neb. 2015) (state contract law governs formation of arbitration agreement unless preempted by FAA)
- Southland Corp. v. Keating, 465 U.S. 1 (U.S. 1984) (FAA creates federal policy favoring arbitration; state rules cannot 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)
- CardioNet, Inc. v. CIGNA Health Corp., 751 F.3d 165 (3d Cir. 2014) (federal courts apply state contract law to determine whether parties agreed to arbitrate)
- Dasher v. RBC Bank (USA), 745 F.3d 1111 (11th Cir. 2014) (presumption of arbitrability does not apply until a valid arbitration agreement is formed)
- Paul Revere Variable Annuity Ins. v. Kirschhofer, 226 F.3d 15 (1st Cir. 2000) (federal preference for arbitration does not resolve formation questions when ambiguity exists)