Frohberg Elec. Co. v. Grossenburg Implement
297 Neb. 356
Neb.2017Background
- Owner (Grossenburg) contracted with Contractor (Kiehm) under a standard form general contract that contained a mediation-then-arbitration dispute resolution scheme in the general conditions.
- Contractor subcontracted electrical work to Subcontractor (Frohberg); the subcontract referenced and stated the subcontractor had examined the general contract documents.
- Subcontract contains Section 11 (to be bound by 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 for in the General Contract."
- A payment dispute arose; Subcontractor filed suit (including lien foreclosure) against Owner and Contractor; Owner and Contractor moved to compel arbitration.
- District court denied the motion, reading Section E as applying only to Contractor (based on the section heading) and finding incorporation ambiguous; Owner and Contractor appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the subcontract unambiguously incorporated the general contract’s arbitration clause | Owner/Contractor: Section E and Section 11 plainly and mutually incorporate the general contract ADR terms, so Subcontractor agreed to arbitrate | Subcontractor: Section E appears under a heading for Contractor’s promises only, so it does not bind Subcontractor; incorporation is ambiguous | Court: Section E’s language is unambiguous and reciprocal despite its heading; subcontractor is bound to arbitrate disputes under the general contract terms |
| Whether the FAA applies and relief should have been stayed pending mediation/arbitration | Owner/Contractor: Subcontract is a services contract between parties of different states, so FAA governs and requires stay/compelled arbitration (mediation is a condition precedent) | Subcontractor: (implicit) state-law analysis and no valid arbitration agreement applies | Court: Contract involves interstate commerce (Minnesota contractor, Nebraska subcontractor); FAA applies; mediation required first and, since mediation had not occurred, the court must compel mediation then arbitration and stay the action |
Key Cases Cited
- Facilities Cost Mgmt. Group v. Otoe Cty. Sch. Dist., 291 Neb. 642 (2015) (contract-ambiguity and interpretation principles)
- David Fiala, Ltd. v. Harrison, 290 Neb. 418 (2015) (state contract law governs formation questions; FAA equal-treatment principle)
- Wilczewski v. Charter West Nat. Bank, 295 Neb. 254 (2016) (arbitrability is question of law on appeal)
- Southland Corp. v. Keating, 465 U.S. 1 (1984) (FAA policy and state-law formation analysis compatibility)