Why Did the Court Reject Binance’s Arbitration Argument?

A federal judge in New York ruled that Binance cannot compel a group of US investors to arbitrate claims tied to crypto tokens purchased on its global platform before Feb. 20, 2019, allowing a proposed class action to proceed in open court.

District Judge Andrew Carter Jr. of the Southern District of New York held that Binance’s 2019 arbitration clause does not apply to claims that arose before its effective date. The court found that users were not given sufficient notice when the exchange updated its terms of use from a 2017 version that contained no arbitration or class action waiver provisions.

According to the ruling, Binance relied on a general change-of-terms clause and posted updated 2019 terms on its website. The court said there was no evidence that the company provided individual notice to users or formally announced the addition of the arbitration provision.

Carter also rejected arguments that Binance’s characterization of itself as operating in a decentralized “new world” altered traditional contract analysis. The decision focused instead on standard principles governing online agreements and whether users were clearly informed of material changes.

Investor Takeaway

The ruling narrows the reach of retroactive arbitration clauses in crypto platforms’ online terms, raising litigation exposure where user notice and assent are unclear.

Why Can’t the Clause Be Applied Retroactively?

The court concluded that the 2019 arbitration provision could not be applied to claims that arose before Feb. 20 of that year because the contract did not clearly state that it would cover prior conduct. In the absence of explicit language extending the clause backward, the judge declined to interpret it as binding earlier transactions.

Carter also addressed a purported US class action waiver embedded in a section heading of the 2019 terms. He found that it was unenforceable in federal court because the contract did not actually set out the substance of any such waiver and, as the drafter, Binance bore the burden of clarity.

The ruling keeps the remaining claims in federal court rather than sending them to private arbitration in Singapore, where Binance had sought to move the dispute.

What Is the Williams v. Binance Case About?

The case, Williams v. Binance, was brought by five US investors from California, Nevada and Texas. They allege that Binance and its founder Changpeng Zhao illegally sold unregistered securities on Binance.com and failed to register as a broker-dealer.

The lawsuit was initially dismissed in 2022. In 2024, however, the Second Circuit revived the investors’ claims and returned the case to Carter’s court for further proceedings.

In a statement, a Binance spokesperson said that “in response to our motion on this issue plaintiffs voluntarily and correctly dismissed all claims that accrued on or after Feb. 20, 2019.” The spokesperson added that Binance would “vigorously defend the limited claims that remain in this meritless case.”

What Happens Next?

With the arbitration bid rejected for pre-2019 claims, the remaining allegations will move forward before a federal judge rather than private arbitrators. The litigation will now focus on whether the tokens at issue qualify as unregistered securities and whether Binance’s activities required broker-dealer registration under US law.

Beyond this case, the decision carries implications for other crypto platforms that have revised online terms over time. Courts may scrutinize whether users received clear notice of arbitration clauses and class action waivers, particularly when companies seek to apply those provisions to earlier conduct.

For exchanges operating globally while serving US customers, the ruling adds to a growing body of case law testing how traditional contract principles apply to digital platforms and cross-border crypto activity.