Binance.US Cryptocurrency Dispute Headed To Arbitration After Court Ruling

News | May 10, 2024 By:

On Friday, April 26, 2024, the United States District Court for the Northern District of California granted a motion to compel arbitration in a securities class action lawsuit involving the cryptocurrency stablecoin TerraUSD (UST).

Plaintiff Jeffrey Lockhart had filed the class action suit against cryptocurrency exchange BAM Trading Services Inc. and its CEO Brian Shroder in June 2022, around a month after UST lost all its value. Lockhart claimed the defendants failed to comply with state and federal securities laws. BAM Trading operates the crypto exchange platform Binance U.S., where Lockhart and other customers purchased and traded UST starting in 2020.

In the lawsuit, Lockhart argued the Terms of Use agreement he agreed to in order to open an account on the Binance. US platform should not force the dispute into arbitration. He claimed the delegation clause giving the arbitrator power to determine arbitrability was unconscionable and claimed he was an unsophisticated consumer who lacked bargaining power.

However, in its ruling, the District Court rejected Lockhart’s arguments. The court found BAM Trading had provided sufficient evidence through its business records that Lockhart consented to the Terms of Use from October 2020 when he opened his account. It also held the delegation clause was enforceable regardless of the relative sophistication of the parties.

The court noted that while take-it-or-leave-it consumer contracts contain some element of procedural unconscionability, Lockhart had not proven the pre-arbitration dispute process was too onerous or that failing to attach the specific AAA arbitration rules made the agreement unconscionable. It distinguished the case from others where consumers had little choice over onerous terms.

Significantly, the court also ruled that simply referencing the American Arbitration Association (AAA) rules without specifying the particular AAA consumer rules was sufficient to delegate arbitrability to an arbitrator. It found the arbitration agreement clearly stated disputes would be resolved “in accordance with the rules of the American Arbitration Association.”

In its analysis, the District Court followed the reasoning of the recent Ninth Circuit case Bielski v. Coinbase, which held incorporating the AAA rules by reference constitutes clear evidence the parties intended to delegate issues of arbitrability to an arbitrator. It rejected cases cited by Lockhart where the choice of rules was ambiguous.

The ruling means Lockhart’s case will now proceed to binding arbitration according to the AAA rules rather than litigation. As part of its reasoning, the court discussed the liberal federal policy favoring arbitration and that ambiguities in scope should be resolved in favor of arbitration.

The order reads:

“For the reasons stated above, Defendants’ motion to compel arbitration is GRANTED. This action is stayed pending arbitration. On or before December 1, 2024, the parties shall jointly provide the Court with a written update on the status of arbitration.”

Please contact BlockTribune for access to a copy of this filing.