Frohberg Elec. Co. v. Grossenburg Implement
297 Neb. 356
| Neb. | 2017Background
- Owner (Grossenburg) entered a general construction contract with Contractor (Kiehm) containing a mediation-then-arbitration clause in the general conditions.
- Contractor subcontracted electrical work to Subcontractor (Frohberg); the subcontract referenced and stated Subcontractor examined the general contract documents.
- Subcontract contained Section E: it required disputes between Contractor and Subcontractor to be "settled by arbitration in the manner provided for in the General Contract." Section 11 bound Subcontractor to the terms of the General Contract.
- Subcontractor filed suit and a construction lien against Owner and Contractor for unpaid work; Owner and Contractor moved to compel arbitration under the subcontract/general contract.
- The district court denied the motion, reading Section E as binding only on Contractor because of its heading and finding Section 11 ambiguous; Owner and Contractor appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the subcontract unambiguously incorporated the general contract's dispute-resolution (mediation then arbitration) provisions | Subcontractor: Section E (under "The Contractor Agrees") did not bind Subcontractor; Section 11 is ambiguous as to applicability to Owner | Owner/Contractor: Section E and Section 11 clearly incorporate and bind Subcontractor to the general contract's dispute-resolution process | Court: Section E and Section 11 unambiguously bind both parties; heading does not limit mutual obligation — arbitration clause incorporated |
| Whether FAA applies (i.e., whether subcontract involves interstate commerce) | Subcontractor: (implicit) FAA not necessarily applicable | Owner/Contractor: FAA applies because subcontract is for services between parties of different states | Court: FAA applies (service contract between MN and NE parties), so agreement presumptively enforceable and action must be stayed pending required mediation and then arbitration if mediation fails |
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 law governs arbitration-formation issues but must treat arbitration agreements equally)
- Wilczewski v. Charter West Nat. Bank, 295 Neb. 254 (Neb. 2016) (arbitrability is a question of law reviewed de novo)
- Southland Corp. v. Keating, 465 U.S. 1 (U.S. 1984) (FAA creates federal policy favoring arbitration and state rules cannot disfavor arbitration)
- CardioNet, Inc. v. CIGNA Health Corp., 751 F.3d 165 (3d Cir. 2014) (apply state contract law to determine whether parties agreed to arbitrate)
- Flores v. Flores-Guerrero, 290 Neb. 248 (Neb. 2015) (appellate courts need not decide issues unnecessary to disposition)