Frohberg Elec. Co. v. Grossenburg Implement , 297 Neb. 356 ( 2017 )

Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
08/18/2017 01:08 AM CDT
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Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
FROHBERG ELEC. CO. v. GROSSENBURG IMPLEMENT
Cite as 297 Neb. 356
Frohberg Electric Company, Inc., a Nebraska corporation,
appellee, v. Grossenburg I mplement, I nc., a Nebraska
corporation, and K iehm Construction, I nc.,
a M innesota corporation, appellants.
___ N.W.2d ___
Filed July 28, 2017. No. S-16-987.
1. Contracts. The meaning of a contract and whether a contract is ambigu-
ous are questions of law.
2. Arbitration and Award. Arbitrability presents a question of law.
3. Judgments: Appeal and Error. When reviewing questions of law,
an appellate court resolves the questions independently of the lower
court’s conclusions.
4. Arbitration and Award: Contracts: Appeal and Error. Where an
issue concerns the formation or existence of an arbitration agreement
and not its validity, enforceability, or scope, an appellate court applies
state law.
5. Arbitration and Award: Federal Acts: Contracts. The Federal
Arbitration Act’s application is triggered only if a contract involving
interstate commerce actually contains an arbitration clause.
6. Arbitration and Award: Federal Acts: Contracts: States. In a con-
tract involving interstate commerce, the equal-treatment principle of the
Federal Arbitration Act applies in determining whether a valid arbitra-
tion agreement exists: States may not apply a state rule discriminating
against arbitration and are required to place arbitration agreements on
equal footing with all other contracts.
7. Contracts. In interpreting a contract, a court must first determine, as a
matter of law, whether the contract is ambiguous.
8. ____. A contract written in clear and unambiguous language is not sub-
ject to interpretation or construction and must be enforced according to
its terms.
9. Contracts: Words and Phrases. A contract is ambiguous when a word,
phrase, or provision in the contract has, or is susceptible of, at least two
reasonable but conflicting interpretations or meanings.
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Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
FROHBERG ELEC. CO. v. GROSSENBURG IMPLEMENT
Cite as 297 Neb. 356
10. Arbitration and Award: Federal Acts: Contracts. If a contract con-
taining an arbitration clause involves interstate commerce, the Federal
Arbitration Act governs the contract.
11. Contracts: States: Words and Phrases. Contracts involving interstate
commerce include contracts for services between parties of differ-
ent states.
12. Appeal and Error. An appellate court is not obligated to engage in an
analysis that is not necessary to adjudicate the case and controversy
before it.
Appeal from the District Court for Wayne County: James G.
Kube, Judge. Reversed and remanded with directions.
Timothy Engler, of Rembolt Ludtke, L.L.P., for appellants.
David E. Copple and Michelle M. Schlecht, of Copple,
Rockey, McKeever & Schlecht, P.C., L.L.O., for appellee.
Heavican, C.J., Wright, Miller-Lerman, Cassel, Stacy,
K elch, and Funke, JJ.
Cassel, J.
INTRODUCTION
This is an appeal from an order denying a motion to compel
arbitration of a construction dispute. A subcontractor sued the
project’s owner and general contractor, which in turn sought to
compel arbitration. The appeal turns on whether the subcon-
tract effectively incorporated a mandatory arbitration clause
from the general contract, thereby mandating the subcontractor
to arbitrate. Because we conclude that it did, we reverse, and
remand with directions.
BACKGROUND
Parties and Governing
Contracts
Grossenburg Implement, Inc. (Owner), a Nebraska cor-
poration, executed a standard form contract (the general
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Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
FROHBERG ELEC. CO. v. GROSSENBURG IMPLEMENT
Cite as 297 Neb. 356
contract) with Kiehm Construction, Inc. (Contractor), a
Minnesota corporation, for the construction of several struc-
tures on Owner’s property in Wayne County, Nebraska. The
general contract included a mandatory arbitration clause for
“any Claim . . . not resolved by mediation pursuant to [the
general conditions].”
Contractor then subcontracted with Frohberg Electric
Company, Inc. (Subcontractor), a Nebraska corporation, to
provide electrical services and materials in constructing the
structures. The subcontract referenced the existence of the
general contract and stated, “Contractor has made available
to . . . Subcontractor all of the above documents, and . . . the
above have been carefully examined by . . . Subcontractor.”
The general contract was also referenced in several sec-
tions of the subcontract, including one (Section 11) in which
Subcontractor agreed “[t]o be bound to . . . Contractor by
the terms of the General Contract” and “to conform to and to
comply with the provisions of the General Contract.” Another
section (Section E), under the heading “The Contractor Agrees
as Follows,” provided: “If arbitration of disputes is provided
for in the General Contract, any dispute arising between
. . . Contractor and . . . Subcontractor under this Subcontract,
including the breach thereof, shall be settled by arbitration in
the manner provided for in the General Contract.”
Lower Court Proceedings
After Subcontractor provided services pursuant to the sub-
contract, a dispute arose concerning the payment owed to
Subcontractor. Subcontractor then obtained a construction lien
against Owner’s property and later filed a complaint against
Owner and Contractor to obtain a judgment and foreclose on
the construction lien.
Owner and Contractor jointly moved to dismiss the com-
plaint or, in the alternative, to compel arbitration pursuant to
the terms of the subcontract and the general contract. They
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Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
FROHBERG ELEC. CO. v. GROSSENBURG IMPLEMENT
Cite as 297 Neb. 356
alleged that the subcontract included specific provisions in
Section 11 and Section E which incorporated the alternative
dispute resolution clauses from the general contract and gen-
eral conditions signed by Owner and Contractor. Thus, they
argued that the matter should be settled by arbitration as pro-
vided in those documents.
The district court overruled the motion and specifically held
that the terms of the subcontract did not bind Subcontractor to
the dispute resolution provisions of the general contract or gen-
eral conditions. The court noted that the only provision specifi-
cally purporting to bind the parties to alternative dispute reso-
lution was under the subcontract section titled “The Contractor
Agrees as Follows” and not contained within the other sections,
“The Subcontractor Agrees as Follows” or “The Contractors
and Subcontractors Agree as Follows.” Accordingly, the court
found that Subcontractor did not agree to that provision by the
express terms of the subcontract.
The court also found that the provision of Section 11 in
which Subcontractor agreed “[t]o be bound to . . . Contractor
by the terms of the General Contract” was vague as to whether
it applied to disputes between Subcontractor and Owner or
between Subcontractor and Contractor. Since the general con-
tract spoke only to disputes between Owner and Contractor,
the court found that the general contract language was incon-
sistent with the subcontract and that the language of the
subcontract should govern. Because it had already deter-
mined that the express terms of the subcontract did not bind
Subcontractor to the dispute resolution process within the
general contract, the court concluded that there was no arbitra-
tion agreement.
Owner and Contractor appealed, and we moved the case to
our docket.1
1
See Neb. Rev. Stat. § 24-1106(3) (Reissue 2016).
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Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
FROHBERG ELEC. CO. v. GROSSENBURG IMPLEMENT
Cite as 297 Neb. 356
ASSIGNMENTS OF ERROR
Owner and Contractor assign, reordered, restated, and com-
bined, that the district court erred in (1) construing the subcon-
tract and the general contract incorporated by reference and (2)
denying their motion to compel arbitration and stay the action
pending arbitration.
STANDARD OF REVIEW
[1-3] The meaning of a contract and whether a contract is
ambiguous are questions of law.2 Likewise, arbitrability pre­
sents a question of law.3 When reviewing questions of law,
an appellate court resolves the questions independently of the
lower court’s conclusions.4
ANALYSIS
Owner and Contractor advance two main arguments on
appeal. They argue that the subcontract incorporated the dis-
pute resolution process outlined in the general contract and
general conditions with clear and unambiguous language set
forth in both Section E and Section 11 of the subcontract. They
also argue that the Federal Arbitration Act (FAA)5 applied to
the subcontract and general contract and that under the express
provisions of the FAA, their motion to compel arbitration
should have been sustained.
[4-6] We first address whether the subcontract unambigu-
ously incorporated the terms of the general contract such
that the claims in the instant case were subject to a binding
arbitration clause. Because this issue concerns the formation
2
Facilities Cost Mgmt. Group v. Otoe Cty. Sch. Dist., 291 Neb. 642, 868
N.W.2d 67 (2015).
3
Wilczewski v. Charter West Nat. Bank, 295 Neb. 254, 889 N.W.2d 63
(2016).
4
Id.
5
9 U.S.C. § 1 et seq. (2012).
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Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
FROHBERG ELEC. CO. v. GROSSENBURG IMPLEMENT
Cite as 297 Neb. 356
or existence of an arbitration agreement and not its valid-
ity, enforceability, or scope, we apply state law.6 The FAA’s
application is triggered only if a contract involving inter-
state commerce actually contains an arbitration clause.7 But,
the FAA’s equal-treatment principle applies in determining
whether a valid arbitration agreement exists: States may not
apply a state rule discriminating against arbitration and are
required to place arbitration agreements on equal footing with
all other contracts.8
6
See David Fiala, Ltd. v. Harrison, 290 Neb. 418, 860 N.W.2d 391 (2015).
See, also, Southland Corp. v. Keating, 465 U.S. 1, 19-20, 104 S. Ct. 852,
79 L. Ed. 2d 1 (1984) (noting “lower courts generally look to state law
regarding questions of formation of the arbitration agreement under [9
U.S.C.] § 2 [(1976)], . . . which is entirely appropriate so long as the
state rule does not conflict with the policy of § 2”) (citations omitted);
Washington Mut. Finance Group, LLC v. Bailey, 364 F.3d 260, 264 (5th
Cir. 2004) (holding “in determining whether the parties agreed to arbitrate
a certain matter, courts apply the contract law of the particular state that
governs the agreement”); ISC Holding AG v. Nobel Biocare Investments
N.V., 351 Fed. Appx. 480 (2d Cir. 2009) (applying state contract law
where contract was ambiguous as to whether agreement to arbitrate
existed).
7
See id. See, also, CardioNet, Inc. v. CIGNA Health Corp., 751 F.3d 165,
173 (3d Cir. 2014) (“while the FAA ‘embodies a strong federal policy
in favor of arbitration, . . . the duty to arbitrate remains one assumed by
contract.’ . . . Thus, the presumption of arbitrability applies only where
an arbitration agreement is ambiguous about whether it covers the dispute
at hand. . . . Otherwise, the plain language of the contract controls”)
(citations omitted); Dasher v. RBC Bank (USA), 745 F.3d 1111, 1116 (11th
Cir. 2014) (determining that presumption of arbitrability does not apply
“before it is determined whether there is a ‘validly formed and enforceable
arbitration agreement’”); Paul Revere Variable Annuity Ins. v. Kirschhofer,
226 F.3d 15 (1st Cir. 2000) (determining that federal preference for
arbitration does not come into play where right to arbitrate is unclear or
ambiguous).
8
See Kindred Nursing Centers Ltd. v. Clark, ___ U.S. ___, 137 S. Ct. 1421,
197 L. Ed. 2d 806 (2017).
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Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
FROHBERG ELEC. CO. v. GROSSENBURG IMPLEMENT
Cite as 297 Neb. 356
[7,8] In interpreting a contract, a court must first deter-
mine, as a matter of law, whether the contract is ambiguous.9
A contract written in clear and unambiguous language is not
subject to interpretation or construction and must be enforced
according to its terms.10
Section E
Owner and Contractor argue that the district court improp-
erly focused on the assigned headings of the subcontract when
it construed Section E as agreed to only by Contractor. Owner
and Contractor allege that Section E unambiguously incorpo-
rated the dispute resolution process provided for in the general
contract and that it was binding upon both Contractor and
Subcontractor. We agree.
As stated above, Section E provided, “If arbitration of
disputes is provided for in the General Contract, any dispute
arising between . . . Contractor and . . . Subcontractor under
this Subcontract, including the breach thereof, shall be settled
by arbitration in the manner provided for in the General
Contract.” But, because the provision was included under
the section heading “The Contractor Agrees as Follows” and
not under either the heading “The Subcontractor Agrees as
Follows” or the heading “The Contractors and Subcontractors
Agree as Follows,” the district court determined that
Subcontractor’s claims were not subject to arbitration. By
purportedly enforcing the express terms of the contract, the
court concluded that Section E was binding on Contractor
only. In doing so, the district court adopted a restrictive inter-
pretation of the section.
[9] While two conflicting interpretations of Section E can
be advanced, only one of them is reasonable. The district
court’s restrictive interpretation disregards Section E’s broad
language and effectively rewrites the section by limiting its
9
Facilities Cost Mgmt. Group v. Otoe Cty. Sch. Dist., supra note 2.
10
Id.
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Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
FROHBERG ELEC. CO. v. GROSSENBURG IMPLEMENT
Cite as 297 Neb. 356
applicability to those disputes complained of by Contractor
and not Subcontractor. A contract is ambiguous when a word,
phrase, or provision in the contract has, or is susceptible of, at
least two reasonable but conflicting interpretations or mean-
ings.11 Because the restrictive interpretation of Section E was
unreasonable, Section E was unambiguous and should have
been enforced by its express terms.
Consequently, both Contractor and Subcontractor agreed
to Section E despite the section heading. For two reasons,
we read that heading as suggesting a mutual promise rather
than a unilateral commitment. First, the plain meaning of
the term “agrees” contemplates a mutual understanding with
­another.12 And because Subcontractor was the only other party
to the subcontract, it was the only one with which Contractor
could agree. Second, because other provisions under the same
heading, including an integration clause, are ones that are
clearly intended to apply to both parties, the heading implicitly
declares that “Contractor Agrees” with Subcontractor.
Even under the heading “The Contractor Agrees as
Follows,” the express terms of Section E included a recipro-
cal agreement to arbitrate all disputes between Contractor
and Subcontractor arising from the subcontract pursuant to
the terms of the general contract. Because Subcontractor’s
claims arose from the subcontract, they were subject to this
agreement.
Incorporated A rbitration
Agreement
Section E expressly provided for the settlement of disputes
between Contractor and Subcontractor by “arbitration in the
11
Id.
12
“Agree,” Oxford English Dictionary Online, http://www.oed.com/view/
Entry/4146 (last visited July 20, 2017) (defining term as “[t]o accede,
consent; to come to an agreement with another”).
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Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
FROHBERG ELEC. CO. v. GROSSENBURG IMPLEMENT
Cite as 297 Neb. 356
manner provided for in the General Contract.” Therefore, we
must clarify what the general contract provides regarding the
“manner” of arbitration.
The general contract provides, “For any Claim subject to,
but not resolved by mediation pursuant to Section 15.3 of [the
general conditions], the method of binding dispute resolution
shall be . . . Arbitration pursuant to Section 15.4 of [the general
conditions].” And, § 15.3.1 of the general conditions provides,
“Claims, disputes, or other matters in controversy arising out of
or related to the Contract except those waived as provided for
in Sections 9.10.4, 9.10.5, and 15.1.6 shall be subject to media-
tion as a condition precedent to binding dispute resolution.”
Thus, a claim must be subject to mediation and the mediation
of the dispute must be unsuccessful before the claim is subject
to binding arbitration.
The sweeping language of § 15.3.1 subjects all claims
arising out of the contract, except those waived pursuant to
the general conditions, to mediation as a condition precedent
to binding dispute resolution. Section 9.10.4 waived certain
claims by Owner after it made final payment. Section 9.10.5
similarly waived those claims by Contractor and subcontractors
after their acceptance of final payment. Finally, Section 15.1.6
waived all claims for consequential damages.
Here, Owner did not make a final payment and, necessarily,
Subcontractor did not accept a final payment. Subcontractor’s
claims arose out of a perceived breach of the contract, and
Subcontractor did not seek consequential damages. Therefore,
Subcontractor’s claims did not fall within one of the categories
of claims waiving mediation pursuant to the general conditions.
Because Subcontractor’s claims all arose out of the contract,
the claims were subject to the dispute resolution process man-
dated by § 15.3.1.
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Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
FROHBERG ELEC. CO. v. GROSSENBURG IMPLEMENT
Cite as 297 Neb. 356
A pplicability of FAA
[10] If a contract containing an arbitration clause involves
interstate commerce, the FAA governs the contract.13 We have
already determined that the subcontract unambiguously incor-
porated the arbitration agreement, with its requirement for
mediation as a condition precedent, from the general contract
and general conditions. Accordingly, we now consider whether
the subcontract involved interstate commerce, thereby trigger-
ing the applicability of the FAA.
[11] Contracts involving interstate commerce include con-
tracts for services between parties of different states.14 Here,
the subcontract undeniably met this definition. The subcontract
was for the provision and installation of electrical services and
materials in the buildings constructed pursuant to the general
contract. Thus, it was a contract for services. And it was clearly
between parties of different states: Contractor is a Minnesota
corporation, and Subcontractor is a Nebraska corporation.
Therefore, the FAA applied and the agreement is presumed
valid, irrevocable, and enforceable.15
Because the subcontract’s arbitration clause is governed
by the FAA, the action should have been stayed until arbitra-
tion was had in accordance with the terms of the agreement.16
Section 15.3.1 mandated mediation as a condition precedent
to binding arbitration. At oral argument, it was conceded that
mediation had not been attempted. Therefore, we must reverse
the district court’s decision and remand the cause with direc-
tions that the court enter an order compelling arbitration in the
manner provided for in the general contract. That is, the parties
must attempt to resolve their dispute in mediation and then
13
David Fiala, Ltd. v. Harrison, supra note 6.
14
Id.
15
See 9 U.S.C. § 2 (2012).
16
See 9 U.S.C. § 3 (2012).
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Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
FROHBERG ELEC. CO. v. GROSSENBURG IMPLEMENT
Cite as 297 Neb. 356
submit their dispute to arbitration in the event that mediation
is unsuccessful.
[12] Having found reversible error, we do not address Owner
and Contractor’s remaining arguments. An appellate court is
not obligated to engage in an analysis that is not necessary to
adjudicate the case and controversy before it.17
CONCLUSION
Because the subcontract included a mutually agreed-to
arbitration clause governed by the FAA and Subcontractor’s
claims were subject to the clause, we conclude that the motion
to compel arbitration in the manner provided for in the gen-
eral contract should have been sustained. In other words, the
parties should have been required to attempt mediation and,
if that failed, to proceed to arbitration. We reverse the district
court’s order and remand the cause with directions that the
court enter an order staying the action and compelling arbitra-
tion pursuant to the agreement.
R eversed and remanded with directions.
17
Flores v. Flores-Guerrero, 290 Neb. 248, 859 N.W.2d 578 (2015).