Frohberg Elec. Co. v. Grossenburg Implement
297 Neb. 356
| Neb. | 2017Background
- Owner (Grossenburg Implement, NE) contracted with Contractor (Kiehm Construction, MN) using a standard form general contract that included mediation as a condition precedent and a mandatory arbitration clause.
- Subcontractor (Frohberg Electric, NE) entered a subcontract to perform electrical work that referenced and stated it had examined the general contract and accompanying documents.
- Subcontract included Section 11 (agreeing to be bound by the General Contract) and Section E (under heading “The Contractor Agrees as Follows”) which stated disputes between Contractor and Subcontractor “shall be settled by arbitration in the manner provided for in the General Contract.”
- Subcontractor filed suit and a lien for unpaid work; Owner and Contractor moved to compel arbitration based on incorporation of the general contract’s dispute-resolution process.
- The district court denied the motion, reasoning Section E was binding only on Contractor because of its heading and that Section 11 was vague as to whether it bound Subcontractor to disputes with Owner.
- The Nebraska Supreme Court granted review to decide whether the subcontract unambiguously incorporated the general contract’s dispute-resolution provisions and whether the FAA applied.
Issues
| Issue | Plaintiff's Argument (Subcontractor) | Defendant's Argument (Owner/Contractor) | Held |
|---|---|---|---|
| Whether the subcontract unambiguously incorporated the general contract’s ADR clauses (including mediation then arbitration) | Section E’s placement under the heading “The Contractor Agrees” means Subcontractor did not agree to arbitration; Section 11 is ambiguous | Section E’s text is broad and mutual in effect; Section 11 expressly binds Subcontractor to General Contract terms | Court held incorporation was unambiguous: Section E and Section 11 bind Subcontractor to mediation then arbitration per the general contract |
| Whether the Federal Arbitration Act (FAA) governs the arbitration clause | FAA does not apply or is inapplicable | Subcontract is for services between parties of different states, so FAA applies | Court held the subcontract involved interstate commerce; FAA governs and the arbitration agreement is enforceable, so action must be stayed pending mediation/arbitration |
Key Cases Cited
- Facilities Cost Mgmt. Group v. Otoe Cty. Sch. Dist., 291 Neb. 642, 868 N.W.2d 67 (Neb. 2015) (contract ambiguity is a question of law)
- David Fiala, Ltd. v. Harrison, 290 Neb. 418, 860 N.W.2d 391 (Neb. 2015) (state law governs formation of arbitration agreement but must treat arbitration agreements the same as other contracts)
- Southland Corp. v. Keating, 465 U.S. 1 (U.S. 1984) (state contract-formation rules are appropriate if they do not conflict with FAA policy)
- CardioNet, Inc. v. CIGNA Health Corp., 751 F.3d 165 (3d Cir. 2014) (presumption of arbitrability applies only when arbitration agreement is ambiguous)