A New York federal judge on Thursday rejected Binance's request to force customers to arbitrate their proposed class action accusing the crypto exchange of improperly selling securities, ruling that customers weren't adequately notified of an arbitration clause added to its terms of use.

U.S. District Judge Andrew L. Carter Jr. denied Binance's motion to compel arbitration for all plaintiffs in the litigation, holding that customers didn't have "constructive notice" of the arbitration agreement included in a 2019 unilateral update to Binance's 2017 terms of use.

"Plaintiffs received no contemporaneous individual notice of the enactment of the 2019 terms of use," Judge Carter said. "There is also no evidence in the record that an arbitration provision was 'announced' as set out in the 2017 terms of use and no indication on the face of the agreement as to where plaintiffs should look for the amendments to the terms."

Last March, Judge Carter already held that the company couldn't compel arbitration for a group of plaintiffs who had purchased tokens between April 1, 2017, and Feb. 20, 2019, the day its amended terms of use were put in place. He also later denied without prejudice the motion to compel arbitration with respect to a second group of plaintiffs whose claims accrued after that February 2019 date, but before they had actual notice of the arbitration clause. However, he ultimately vacated that decision so the parties could file supplemental briefing materials on the March order.

Binance then lodged a new request for the court to force all of the members of the proposed class into arbitration, including for claims the court's prior order said couldn't be arbitrated.

"First, when plaintiffs accepted the 2019 terms of use, they expressly agreed, at minimum, to arbitrate all claims arising on or after Feb. 20, 2019 — the effective date of the 2019 terms," Binance argued in its renewed motion. "Courts routinely hold that plaintiffs who accept an arbitration clause are required to arbitrate disputes accruing before the date of notice."

But Judge Carter said Thursday that customers had no reason to look at the new contract Binance posted and no obligation to check the terms on a periodic basis. And even if the plaintiffs did have constructive notice, the 2019 terms of use do not apply retroactively to claims that accrued before the effective date, he said.

While the arbitration agreement states that users agree to resolve any claims against Binance, the terms of use are silent with respect to the time period during which the modification would apply to known or accrued claims, the judge said.

"For instance, the arbitration provision could have said, 'users agree to resolve any claims that accrued in the past two years' or even 'users agree to resolve any claims that accrued any point prior to this effective date,'" Judge Carter said. "However, Binance's unilateral modification does not give the user any temporal information."

The putative class action waiver in the arbitration provision also is not enforceable, the judge said. That's because the 2019 terms of use are silent as to the imposition of such a waiver and there are no provisions detailing such a waiver, according to the opinion. And the language is unclear and should be interpreted against the drafter, Judge Carter said.

"Here, Binance users certainly did not have the opportunity to negotiate the 2019 terms of use," the judge said. "A contract of adhesion should be interpreted against the drafter due to the inherent power imbalance."

The case is one of an avalanche of investor suits that hit crypto exchanges around April 2020 in the first widespread, coordinated effort to bring them into compliance with securities laws.

In November 2023, Binance agreed to pay $4.3 billion to end a U.S. Department of Justice investigation into allegations that the company had failed to implement an anti-money laundering program. Binance founder Changpeng Zhao pled guilty to a criminal charge of failing to maintain an effective anti-money laundering program. Zhao and Binance also made $150 million and $2.7 billion settlements with the U.S. Commodity Futures Trading Commission.

Jordan Goldstein, counsel for the plaintiffs, told Law360, "On behalf of Binance users, we are gratified by the court's ruling."

"We look forward to prosecuting this class action against Binance and its founder Changpeng Zhao," Goldstein said.

Binance didn't immediately respond to a request for comment late Thursday.

The plaintiffs are represented by Jordan A. Goldstein of Selendy Gay PLLC.

Binance is represented by Samson A. Enzer, Herbert S. Washer, Landis C. Best, Edward N. Moss and Miles C. Wiley of Cahill Gordon & Reindel LLP and Matt Gregory of Gibson Dunn & Crutcher LLP.

The case is J.D. Anderson et al. v. Binance et al., case number 1:20-cv-02803 in the U.S. District Court for the Southern District of New York.