Frohberg Elec. Co. v. Grossenburg Implement
297 Neb. 356
Neb.2017Background
- Owner (Grossenburg) contracted with Contractor (Kiehm) under a standard form general contract that included a mediation-then-arbitration dispute resolution provision 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 contained Section 11 (agreeing to be bound by the General Contract) and Section E (under heading “The Contractor Agrees as Follows”) stating that if the General Contract provided for arbitration, disputes between Contractor and Subcontractor “shall be settled by arbitration in the manner provided for in the General Contract.”
- A payment dispute led Subcontractor to file suit and a lien; Owner and Contractor moved to compel arbitration and to stay the action; the district court denied the motion, concluding the subcontract did not bind Subcontractor to the general contract’s dispute provisions.
- Owner and Contractor appealed; the Nebraska Supreme Court considered (1) whether the subcontract unambiguously incorporated the general contract’s ADR provisions and (2) whether the FAA governed the arbitration clause.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the subcontract unambiguously incorporated the general contract’s dispute-resolution (mediation then arbitration) provisions | Frohberg: subcontract wording and placement do not bind Subcontractor to the general contract ADR clause; Section E applies only to Contractor | Owner/Contractor: Section E and Section 11 unambiguously incorporate the general contract ADR terms, so Subcontractor agreed to mediate then arbitrate | Court held Section E unambiguously created a mutual arbitration agreement; the heading did not limit applicability to Contractor only; incorporation enforced |
| Whether the FAA applies to compel arbitration | Frohberg: state law controls formation; FAA inapplicable or does not change result | Owner/Contractor: subcontract is a services contract between parties of different states, so FAA governs and requires stay/compel | Court held subcontract involved interstate commerce (Minnesota Contractor, Nebraska Subcontractor); FAA applies; arbitration (after mediation) must be compelled and action stayed |
Key Cases Cited
- Facilities Cost Mgmt. Group v. Otoe Cty. Sch. Dist., 291 Neb. 642 (Neb. 2015) (contract interpretation and ambiguity as questions of law)
- Wilczewski v. Charter West Nat. Bank, 295 Neb. 254 (Neb. 2016) (arbitrability is a question of law reviewed de novo)
- David Fiala, Ltd. v. Harrison, 290 Neb. 418 (Neb. 2015) (state law governs formation/existence of arbitration agreement unless preempted by FAA)
- Southland Corp. v. Keating, 465 U.S. 1 (U.S. 1984) (FAA preempts state rules that disfavour arbitration; state contract law may be applied so long as it does not conflict with FAA policy)
- CardioNet, Inc. v. CIGNA Health Corp., 751 F.3d 165 (3d Cir. 2014) (state contract law governs whether parties agreed to arbitrate a matter)
- Dasher v. RBC Bank (USA), 745 F.3d 1111 (11th Cir. 2014) (presumption of arbitrability not applied until formation of arbitration agreement is established)