Frohberg Elec. Co. v. Grossenburg Implement
297 Neb. 356
| Neb. | 2017Background
- Owner (Grossenburg) contracted with Contractor (Kiehm, MN) on a standard-form general contract containing mediation-then-arbitration clauses in the general conditions.
- Subcontractor (Frohberg, NE) executed a subcontract to perform electrical work; the subcontract referenced and stated Subcontractor examined the general contract and general conditions.
- Subcontract provisions included Section 11 (Subcontractor agrees to be bound by terms of 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.”
- A payment dispute arose; Subcontractor filed suit seeking foreclosure of a construction lien. Owner and Contractor moved to compel arbitration; district court denied the motion, reasoning Section E was binding only on Contractor due to its heading and Section 11 was ambiguous as to whether it bound Subcontractor to arbitration with Owner.
- Owner and Contractor appealed; the Nebraska Supreme Court reviewed whether the subcontract unambiguously incorporated the general contract’s dispute-resolution process and whether the Federal Arbitration Act (FAA) applied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the subcontract unambiguously incorporated the general contract’s arbitration/mediation scheme | Frohberg: subcontract language and headings do not bind Subcontractor to the general contract’s ADR provisions | Owner/Contractor: Sections E and 11 clearly incorporate and bind Subcontractor to the general contract ADR process | Court: Section E’s language is unambiguous and reciprocal despite heading; subcontract incorporated general contract’s mediation-then-arbitration process |
| Whether mediation was a condition precedent to arbitration under the incorporated terms | Frohberg: arbitration was not available because subcontract did not incorporate the general conditions requiring mediation first | Owner/Contractor: incorporated general conditions require mediation before arbitration | Court: General conditions §15.3.1 requires mediation as condition precedent; mediation had not been attempted |
| Whether the FAA governs the incorporated arbitration clause | Frohberg: FAA does not apply because formation is unclear or dispute is state law matter | Owner/Contractor: subcontract is for services between parties of different states, so FAA applies | Court: Contract involved interstate commerce (MN contractor, NE subcontractor for services); FAA applies and arbitration agreement is enforceable |
| Whether action should be stayed and arbitration compelled | Frohberg: district court correctly denied motion to compel | Owner/Contractor: district court erred; stay and compel required | Court: Reversed district court; directed entry of stay and order compelling mediation then arbitration per agreement |
Key Cases Cited
- Facilities Cost Mgmt. Group v. Otoe Cty. Sch. Dist., 291 Neb. 642 (Neb. 2015) (contract-ambiguity and contract interpretation principles)
- Wilczewski v. Charter West Nat. Bank, 295 Neb. 254 (Neb. 2016) (arbitrability presents question of law)
- David Fiala, Ltd. v. Harrison, 290 Neb. 418 (Neb. 2015) (state law governs formation/existence of arbitration agreements; FAA equal-treatment principle)
- Southland Corp. v. Keating, 465 U.S. 1 (U.S. 1984) (federal policy favoring arbitration and state-law formation questions limited by FAA)
- CardioNet, Inc. v. CIGNA Health Corp., 751 F.3d 165 (3d Cir. 2014) (state contract law applied to determine whether parties agreed to arbitrate)