Frohberg Elec. Co. v. Grossenburg Implement
297 Neb. 356
Neb.2017Background
- Owner (Grossenburg) contracted with Contractor (Kiehm, Minnesota) for construction; the general contract included mandatory mediation-then-arbitration procedures in its general conditions.
- Subcontractor (Frohberg, Nebraska) signed a subcontract referencing and acknowledging examination of the general contract and agreeing in Section 11 to be “bound to … Contractor by the terms of the General Contract.”
- Section E of the subcontract (under the heading “The Contractor Agrees as Follows”) stated disputes between Contractor and Subcontractor shall be settled by arbitration in the manner provided by the General Contract.
- Subcontractor filed suit and a lien claiming unpaid work; Owner and Contractor moved to compel arbitration under the subcontract/general contract; the district court denied the motion finding the arbitration clause bound Contractor only.
- Owner and Contractor appealed; the Nebraska Supreme Court considered whether the subcontract unambiguously incorporated the general contract’s dispute-resolution clause and whether the Federal Arbitration Act (FAA) applied.
Issues
| Issue | Plaintiff's Argument (Subcontractor) | Defendant's Argument (Owner/Contractor) | Held |
|---|---|---|---|
| Whether the subcontract incorporated the general contract’s arbitration clause | Section E, by its heading, binds only Contractor; Subcontractor did not agree to arbitrate | Section E and Section 11 unambiguously incorporate the General Contract’s dispute-resolution provisions and bind Subcontractor | Court: Section E is unambiguous and mutual; subcontract incorporates the general contract arbitration clause |
| Whether mediation is a condition precedent to arbitration under the incorporated terms | Mediation requirement not binding on Subcontractor because clause didn’t apply | The General Contract’s §15.3.1 requires mediation before arbitration for all non-waived claims | Court: §15.3.1 applies; mediation must be attempted before arbitration |
| Whether the FAA governs the incorporated arbitration agreement | FAA inapplicable because this is a local contract | FAA applies to contracts involving interstate commerce (services between parties of different states) | Court: FAA applies (Minnesota Contractor, Nebraska Subcontractor); FAA presumptively enforces arbitration agreement |
| Remedy: whether district court should have stayed suit and compelled arbitration | Proceed in court because no arbitration agreement | Stay action and compel mediation then arbitration per agreement | Court: Reverse; remand with directions to stay and compel mediation then arbitration |
Key Cases Cited
- Facilities Cost Mgmt. Group v. Otoe Cty. Sch. Dist., 291 Neb. 642 (contract ambiguity and interpretation principles)
- David Fiala, Ltd. v. Harrison, 290 Neb. 418 (state law governs formation questions; FAA equal-treatment principle)
- Wilczewski v. Charter West Nat. Bank, 295 Neb. 254 (arbitrability as question of law)
- Southland Corp. v. Keating, 465 U.S. 1 (state contract law may be applied so long as it does not conflict with FAA policy)
- Kindred Nursing Centers Ltd. v. Clark, 137 S. Ct. 1421 (states may not apply rules that discriminate against arbitration)