Federal court denies arbitration in putative class action against crypto platform because of insufficient notice to customers
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In a February 26, 2026, decision, Judge Carter of the Southern District of New York denied a motion to compel arbitration filed by cryptocurrency exchange Binance, exposing the company to the risk of certification of a large securities class action. The decision hinged on the court's finding that Binance had not clearly drafted the new arbitration provisions in its terms of use or effectively communicated those changes to its customers. Platforms that rely on unilateral modification clauses should take note: without careful drafting and clear procedures for communicating material changes to customers, their agreements may be difficult to enforce.
No arbitration in a class action alleging Binance issued unregistered securities
The five-year-old case alleges that Binance and other defendants "reaped billions of dollars in profits" and caused Plaintiffs "significant damages."1 The claims center on the promotion, offering, and sale of digital tokens on the Binance.com platform. Plaintiffs assert that Binance violated federal and state securities laws by selling these digital tokens without a registration statement and without registering as a broker-dealer. Plaintiffs allege that the value of many of those tokens has since collapsed, and plaintiffs seek to recover the amounts they paid for the tokens.2
Such consumer class actions are frequently sent to arbitration, and class action waivers greatly reduce exposure to class-wide damages. The Federal Arbitration Act and federal law strongly encourage enforcement of arbitration clauses, even where the arbitration agreement is contained in terms and conditions that a customer may choose not to read.3 But the court in this case strictly enforced three principles of contract formation. The customers must be on notice of the arbitration agreement to consent to it. A class action waiver must be clear and unequivocal. Also, the unilateral addition of an important term, such as an arbitration clause, will not apply retroactively without clear notice.4
Plaintiffs in the Binance case created their accounts in 2017 and 2018, when Binance's terms of use did not contain an arbitration clause or a class action waiver. The terms did, however, allow Binance to unilaterally amend the agreement without individual notice by posting updates to its website. Specifically, the terms included a provision that Binance could "amend this agreement" "from time to time as needed, and announce the same on the website, without any individual notice to you."5 In February 2019, Binance did just that. Binance revised its terms of use to add both an arbitration agreement and a class action waiver and posted the revised terms on a web page. Binance did not separately notify its customers individually.
Applying California law, the court denied Binance's motion to compel arbitration and found the class action waiver unenforceable.6 The court's reasoning is based on three significant grounds.
Unilateral modification requires sufficient notice to customers. Terms of use cannot override state law requiring adequate notice to customers of changes. In this case, the court found that simply posting the 2019 revised terms of use to Binance's website was insufficient. The court found that there was "no evidence in the record that an arbitration provision was announced" to customers, nor was there any "indication on the face of the agreement as to where Plaintiffs should look for the amendments to the terms."7 The court contrasted Binance's approach with cases in which customers received individual email notice or notice through their online account. Binance's approach "would lead to absurd results," requiring its customers to check daily or even hourly to know whether their terms of use had materially changed. Because Binance's customers did not receive notice of the arbitration clause, they could not have formed an agreement to arbitrate.8
No retroactive application of the arbitration clause. The court held that, even if Plaintiffs had notice of the arbitration clause, the provision would not apply to claims that arose before the 2019 revision. Binance could have modified its terms to require arbitration of prior claims if it said so clearly, such as a statement that "users agree to resolve any claims that accrued in the past two years." But under California law, a unilateral modification provision that is silent as to whether contract changes apply to claims already accrued is not retroactive.9
A class action waiver too vague to enforce. The 2019 amended terms of use included a section heading with the phrase "class action waiver," but nothing substantive about what the waiver entailed or how it applied. The court found the provision ambiguous and interpreted it against Binance, its author, effectively invalidating it.10
Key Lessons for Crypto and Other Consumer Platforms
The Binance case offers various key lessons. The need to update terms to include material new provisions, such as an arbitration clause with a class action waiver, may come up in various contexts, including M&A due diligence of a target company's terms, or when product counsel inherits ownership of product terms that require updates and revisions. In our experience, the practice of updating terms without providing individual notice to customers is quite pervasive. There are many reasons for this. Clients have reported that frequent notices to customers or other consent mechanisms, such as pop-up terms that require a customer to scroll through terms and check a box before accessing services, can annoy customers or otherwise signal unstable products with constant terms updates. Clients also report that embedding terms updates in user flows creates engineering and UX/UI frictions.
Skipping customer notices, however, may have a heavy price. An arbitration clause with a class action waiver is a critical tool for reducing litigation risk—but only if a court is willing to enforce it. For any significant modification to terms of use, platforms should consider the following principles:
- Even if your terms include a unilateral modification provision, material changes to contracts require mutual assent. And mutual assent requires providing notice to consumers. Suitable notice methods may include email, text message, mobile app notification, or "clickwrap" notification on a website page, such as the customer's account;11
- As this case shows, material amendments to terms must comply with state contract law to be enforceable. In addition to contract law concerns, state and federal consumer protection laws apply. Depending on the type of product being offered to customers, platforms may be required to provide specific customer notices before the terms take effect. State and federal law also prohibit unfair and deceptive acts and practices, i.e., UDAP. The risk of UDAP can be mitigated by drafting language in a straightforward and precise manner. Also, if a customer—or a court—cannot understand the provision, it's harder to enforce. Platforms should use plain language that is unambiguous; and
- New developments in the law may require updates or the addition of new provisions to protect the company and mitigate risk exposure. For example, state courts take different approaches to enforcing amendments to terms retroactively. Companies should review these precedents and revise their arbitration clauses to align with the governing law in their state. The denial of arbitration or the invalidation of a class action waiver can result in significant litigation exposure. A proactive and informed approach to updating and maintaining terms of use is advisable for any consumer-facing platform, including crypto.
1 Anderson et al. v. Binance et al., No. 20-cv-02803(ALC), ECF No. 104 (S.D.N.Y. May 13, 2024) ("Third Am. Compl.") at ¶¶ 6, 277.
2 Third Am. Compl. ¶ 13.
3 See, e.g., Lee v. Ticketmaster L.L.C., 817 F. App'x 393, 395 (9th Cir. 2020) (a plaintiff "cannot avoid the terms of the contract on the ground that he failed to read it before signing") (cleaned up).
4 Some jurisdictions are stricter. Texas, for example, does not permit any retroactive implementation of an arbitration clause. See Grant v. Worley Grp. Inc., No. 4:24-CV-00161, 2024 U.S. Dist. LEXIS 182542, at *6 (S.D. Tex. Oct. 7, 2024) ("Under Texas law, where an employer is able to amend an arbitration agreement, such an agreement must have provisions preventing a party from unilaterally terminating or retroactively amending the agreement.").
5 Binance, ECF No. 164 (S.D.N.Y. Feb. 26, 2026) ("Order") at 5.
6 Since arbitration is a creature of contract, state law principles govern whether an agreement to arbitrate has been formed. Order at 12. The court applied a choice-of-law analysis, noting that a contract executed on the internet is generally governed by the law of the state of residence for the parties. Id. Binance is a decentralized company without any headquarters, but Plaintiffs are citizens of California, Nevada, and Texas, so the law of all three states applied. Id. The court applied California law because "the laws of California, Nevada, and Texas are substantively similar with respect to contract formation." Id.
7 Order at 15.
8 Id. at 14-15.
9 Id. at 17-18.
10 Id. at 18-20.
11 A "clickwrap" notification requires a customer to click or check a box indicating their assent to the terms of use.
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