Frohberg Elec. Co. v. Grossenburg Implement
297 Neb. 356
| Neb. | 2017Background
- Owner (Grossenburg Implement, NE) contracted with Contractor (Kiehm, MN) on a standard-form general contract that contained mandatory mediation-then-arbitration provisions in its general conditions.
- Contractor subcontracted electrical work to Subcontractor (Frohberg, NE); the subcontract referenced and made the general contract available and included Section 11 (be bound by general contract) and Section E (stating disputes between Contractor and Subcontractor shall be settled by arbitration in the manner provided in the General Contract).
- Subcontractor sued Owner and Contractor to foreclose a construction lien and obtain payment; Owner and Contractor moved to compel arbitration under the subcontract/general contract.
- The district court denied the motion, reasoning Section E (located under the heading “The Contractor Agrees as Follows”) bound only Contractor, and Section 11 was ambiguous as to whether it bound Subcontractor to disputes with Owner.
- The Nebraska Supreme Court reversed, holding the subcontract unambiguously incorporated the general contract’s dispute resolution process (including mediation as a precondition) and that the FAA applied because the subcontract involved interstate commerce (parties from different states).
Issues
| Issue | Plaintiff's Argument (Frohberg) | Defendant's Argument (Owner/Contractor) | Held |
|---|---|---|---|
| Whether the subcontract incorporated the general contract’s arbitration clause | Subcontract did not mutually agree to arbitration; Section E is under Contractor heading so binds Contractor only | Subcontract incorporated the general contract and Section E unambiguously binds both parties to arbitration in the manner of the general contract | Held for Owner/Contractor: Section E and Section 11 unambiguously bind Subcontractor to arbitration |
| Whether the placement of Section E under a Contractor-heading prevents mutual application | Heading indicates unilateral promise by Contractor; therefore Subcontractor didn’t agree | Headings don’t override clear reciprocal language; “agrees” implies mutual assent and other provisions under that heading apply to both parties | Held: Heading is not controlling; Section E’s language creates a reciprocal arbitration promise |
| Whether mediation is a condition precedent before arbitration | Mediation not required; arbitration can proceed directly | General conditions require mediation (Section 15.3.1) before binding arbitration | Held: Mediation is a condition precedent; parties must attempt mediation before arbitration |
| Whether the FAA governs the arbitration clause | FAA does not apply or is inapplicable to these contracts | Subcontract is a services contract between parties of different states so FAA governs | Held: FAA applies (interstate commerce present); arbitration clause enforceable and action must be stayed pending mediation/arbitration |
Key Cases Cited
- Facilities Cost Mgmt. Group v. Otoe Cty. Sch. Dist., 291 Neb. 642 (Neb. 2015) (state contract interpretation and ambiguity principles)
- David Fiala, Ltd. v. Harrison, 290 Neb. 418 (Neb. 2015) (application of FAA principles and state law on arbitration formation)
- Southland Corp. v. Keating, 465 U.S. 1 (U.S. 1984) (federal policy on arbitration and interplay with state law on formation)
- Kindred Nursing Centers Ltd. v. Clark, 137 S. Ct. 1421 (U.S. 2017) (equal-treatment principle and enforceability of arbitration agreements under federal law)