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According to a Georgia appellate court, an assignee is presumed to know whether the contract terms include an arbitration clause, and if the assignee fails to raise arbitration as a defense before substantially participating in litigation, it waives its arbitration defense.
In M. Homes, LLC v. Southern Structural, Inc., No. A06A1554, 2006 WL 2498010 (Ga. Ct. App. Aug. 30, 2006), M. Homes, the assignee to a construction contract, demanded arbitration with Southern Structural during the litigation discovery process. Southern Structural argued that M. Homes had waived its right to arbitration by participating in discovery.
In response, M. Homes contended that it only learned of the contract’s terms through the discovery process and, therefore, it demanded arbitration in a timely manner. Additionally, M. Homes argued that, as the assignee to the construction contract, it was entitled to all the defenses that had been available to the assignor.
The Court identified a major flaw in M. Homes’ argument. “On one hand, M. Homes contends it did not waive its right to arbitrate because it did not know the right existed…and on the other hand, it argues that it stands in the Assignor’s place as its assignee. M Homes cannot have it both ways.”
In Georgia, an assignee of a contract acquires the rights and defenses available to the assignor, but the assignee is presumed to know the terms of the contract. Applying this rule, the Court concluded that M. Homes was presumed to know the terms of the contract, and, therefore, waived its right to arbitrate by participating in the litigation process for eight months before raising arbitration as a defense.
The Court granted Southern Structural’s application to stay arbitration, and the case will proceed in litigation.
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