A judge in Manhattan has turned down Binances motion to force American investors to arbitrate over the claims regarding token losses that were made before February 20, 2019.
The judge clarified that the 2019 arbitration clause of the exchange cannot be extended back in time since the users were not given clear, individual notice of the change, and the 2017 original terms had neither arbitration nor classaction waiver.
Background of the Dispute
The class action was brought by five investors that live in different states namely California, Nevada, and Texas. They claim that Binance and its CEO Changpeng Zhao had been selling unregistered securities on their website and had also been brokerdealers without registering.
After the Second Circuit dismissed the case in 2022 and then revived it in 2024, the case was back in front of Judge Carter.
Binance had tried to get the dispute to be resolved through private arbitration in Singapore by publishing updated terms on its website, but the judge noted that there was no evidence of the users being given personal notification or a formal announcement of the new clause.
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Key Legal Findings
Simply put, a change, of, terms clause can’t allow one party to unilaterally impose arbitration without a clear, very visible notice. He furthermore considered the class, action waiver that was supposed to be in the 2019 terms as being unenforceable because it was vague and the rule of interpretation against the drafter was applicable.
Thus, any claims before 2019 would still be under the jurisdiction of federal courts, and those after 2019 have apparently been dismissed by the plaintiffs voluntarily.
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Implications for Crypto Platforms
The decision highlights the need for devices that are easy to understand and will be recognized when the terms of service are updated.
For exchanges, it is a sign that courts will be looking at arbitration clauses very closely and might reject them if the users haven’t been properly informed.
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