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(Reuters) – A very public class-action defense accuses crypto trading platform Binance.US of violating securities laws by facilitating trading in the collapsed stablecoin TeraUSD. It risked new lawsuits.
When the Binance US class action lawsuit was filed last June, I spoke about its ingenious framework. This is designed to sidestep the jurisdictional issues that doomed a previous class action lawsuit against Binance’s Malta-based parent company. In alleging that Binance US was illegally operating as an unregistered US exchange, the company’s plaintiffs’ attorney, then known as Roche Freedman, said US securities laws do not apply to trading on the platform. I wanted to contain the defense’s allegation. (This company is now known as Friedman Normand Friedland. He boasted of filing an investor class action lawsuit to damage a cryptocurrency company competitor in which he had a financial interest. (This is because the partner who had the relationship was secretly recorded on tape.)
But before Freedman Norman can test the theory that Binance US is an unregistered stock exchange, the company told Jacqueline Scott Corley, U.S. District Court Judge in San Francisco, that the Binance class action belongs to the court and that the arbitration is pending. You have to convince yourself that you don’t belong to the proceedings. American Arbitration Association.
In November, lawyers for Binance at Hahn Loeser & Parks moved to compel arbitration of claims by the court-appointed lead plaintiff, North Dakota orthodontist and cryptocurrency investor Michiel Nuveen. Hahn Loeser put forward an argument familiar to class action lawyers on both sides of the court. In order to use the Binance US platform, Nuveen has agreed to a terms of service that includes a mandatory arbitration clause, Binance claimed. This clause incorporates the AAA Rules that delegate arbitrator boundary disputes regarding arbitrability. According to Binance, at least Nuveen’s lawsuit will be dismissed, allowing an arbitrator to determine if his claim belongs to his AAA or if he can take the case in court.
Binance told Corley that because Nuveen willingly agreed to these terms, the agreement cannot be deemed procedurally illegitimate. Even if the arbitration agreement is materially unfair and unenforceable (a scenario Binance strongly denies), only arbitrators can make that decision, he said. (Binance’s argument is rather nuanced in its arguments about procedural and substantive fairness of both the mandate clause and the agreement itself, but I got the point across.)
Freedman Norman filed a brief letter on Wednesday opposing Binance’s motion to force arbitration. The brief primarily argues that Binance did not provide any evidence that Nuveen had in fact seen or accepted the arbitration clause, and that the AAA’s complex rules for delegating questions about thresholds to arbitration. The mere inclusion of a citation is discouraged by unsophisticated consumers.
“If a customer, after examining the various versions of the AAA Rules, can determine which version applies and whether it contains a delegation clause, his or her only options are to accept the delegation or is to deny the transaction of the Freedman Norman filing. “The contract with Binance US is a traditional adhesive contract presented to customers (including plaintiffs) and is on a take-it-or-leave-it basis.”
In Brennan v. Opus Bank, 2015, the Court of Appeals for the Ninth Circuit held that the incorporation of the AAA Rules into an arbitration agreement had a “clear and unmistakable intent” to delegate arbitrability disputes to an arbitrator. decided to configure the But Friedman-Norman argued in Wednesday’s brief that Opus Bank’s decision specifically cut out an arbitration clause in consumer contracts. And since that decision, the Ninth Circuit trial court has continued to find that the incorporation of the AAA rule into consumer contracts does not definitively solve the delegation issue, the company argues. (As I said, the U.S. Supreme Court has yet to rule on this matter at all.)
Friedman Norman goes beyond procedural arguments to argue that arbitration agreements are fundamentally unfair to consumers. That’s because while Binance retains the option to sue in court, it has established a cumbersome complaint, notice and arbitration process for consumers. It refused to force arbitration in a consumer class action lawsuit against Base, arguing that the agreement was unconscionable because it imposed unilateral terms on Coinbase users.
Coinbase has since persuaded the Supreme Court to decide whether the underlying class action must be stayed while it appeals Alsup’s decision on arbitrability. However, Friedman-Norman said Alsup’s conclusions on arbitrability should also apply to Binance’s terms.
Hahn Loeser’s Binance attorney did not respond to my questions regarding the new outline. Alex Potter of Freedman Norman said in an emailed statement that the Binance case “contains a clear example of the type of arbitration provision that federal courts wisely refuse to enforce, for many reasons.”
When we first reported on the Binance class action lawsuit, we said that the crypto platform would likely try to force arbitration, given that the plaintiffs’ original complaint contained a claim that the arbitration agreement was unenforceable. An amended complaint filed in October reinforced these allegations.
Clearly, Binance was unafraid of a preemptive strike on the arbitration agreement. So let’s see if the old-fashioned defense holds up.
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