Opinion ID: 200404
Heading Depth: 2
Heading Rank: 2

Heading: Waiver By Federal USA and Federal Finland

Text: 33 Defendants Federal USA and Federal Finland argue that they have not waived a right to arbitrate because the delay between the time they were joined as defendants and the time they moved to compel arbitration is not sufficient to establish prejudice. Federal USA was not served until January 2000 and Federal Finland was not joined as defendant by RPM until March 2000. Dunlop, meanwhile, did not join either of the Federals as defendants until June 2000. Subsequently, neither of the Federals participated in discovery. 34 We assume arguendo, in the Federals' favor, that they, as non-signatories to the contract containing the arbitration clause, may assert a claim to arbitration based on their relationship with Bronto. 2 Still, Bronto clearly waived its right to enforce the arbitration clause, 3 and the Federals are bound by that waiver because it occurred before the plaintiffs had notice of the asset purchase. See Restatement (Second) of Contracts § 336(2) (1981) (The right of any assignee is subject to any defense or claim of the obligor which accrues before the obligor receives notification of the assignment, but not to defenses or claims which accrue thereafter except as stated in this Section or as provided by statute.) (emphasis added); cf. U.C.C. § 9-318(1)(b), 3A U.L.A. 460 (1992) (rights of an assignee are subject to any other defense or claim of the account debtor against the assignor which accrues before the account debtor receives notification of the assignment); In re Calore Express Co., 288 F.3d 22, 47 (1st Cir.2002) (applying Massachusetts law and finding that timing of notice of assignment under § 9-318(1)(b) governs outcome). 4 35 Nevertheless, the Federals argue that they are not bound by Bronto's actions because those actions occurred after the August 1995 asset purchase. The Federals contend their rights as assignees are measured at the time of the assignment, and so plaintiffs — the obligors — cannot raise a defense of waiver based on Bronto's conduct. But as said, basic contract law principles do not limit obligors to only those defenses that arose before the assignment. Instead, the inquiry turns on when the obligor received notification of the assignment. As a result, the obligor can employ defenses that emerged subsequent to assignment: 36 The assignee takes what the assignor had `warts and all,' for an assignment does not deprive the obligor of any defenses or claims arising out of the agreement that the obligor could have asserted against the assignor absent assignment. The obligor may assert these defenses and claims against the assignee, regardless of whether the assignee knew of their existence at the time of assignment or whether they had even come into existence at that time. 37 3 E.A. Farnsworth, Farnsworth On Contracts § 11.8, at 106 (2d ed. 1998) (emphasis added). In short, the Federals are bound by Bronto's actions prior to the plaintiffs' 1999 discovery of the ownership change. 38 For these reasons, the Federals do not have a right to compel arbitration under the 1993 bill of sale.