The DraftKings and FanDuel Litigations: What to Focus On as the Stakes Rise in FL and NY

Since the daily fantasy sports (DFS) insider trading scandal made headlines in late-September 2015, DraftKings, Inc. and FanDuel, Inc., the two DFS industry leaders, have been served with dozens of federal lawsuits.

This past week, some noise was made in the federal putative class action known as Gomez v. FanDuel, Inc. et al. Initially, DraftKings and FanDuel were the only defendants in the case, which was filed in the Southern District Court of Florida in October 2015.

Yet, on November 21, 2015, the Gomez plaintiffs amended their complaint to add a myriad of defendants. The amendment adds as defendants a number of major professional sports leagues (the NHL, NBA, and MLB). Also added are various entertainment businesses, servicing companies, financial institutions and credit card companies. Essentially, the plaintiffs sought to rope in any company involved with investing in — or connected to the business operations of — DraftKings or FanDuel.

However, the current focus of DraftKings and FanDuel is the New York preliminary injunction hearing scheduled for Wednesday November 25, 2015. In early-November, N.Y. Attorney General Eric Schneiderman notified DraftKings and FanDuel of his decision to ban the companies from accepting New York residents’ DFS wagers. The DFS companies filed New York state court actions requesting injunctive relief — a plea which, if granted, will bar Schneiderman’s action.

New York State is a precious market, contributing to a large percentage of the DFS companies’ business. The Florida class action, on the other hand, will be placed on the back burner for now. The case brought a number of claims to begin with, and the addition of new claims and defendants buys time for DraftKings and FanDuel. In sum, the Florida action’s duration will be lengthy, and it can be placed on the back burner for now. The New York preliminary injunction hearing is important and deserves the companies’ attention. But, it will be interesting to see whether the amended complaint will change the business relationships between the defendants in Gomez.

As for the New York matter, a preliminary injunction motion seeks to preserve the status quo. In other words, if such a motion is granted, the court order will prohibit the defendant from engaging in the questioned conduct until the case is subsequently decided on the merits during dispositive motions or at trial.

DraftKings and FanDuel seek an order to suspend Schneiderman’s decision until the matter is decided on the merits. Of particular significance is one of the burdens plaintiffs must meet; in order to obtain a preliminary injunction, plaintiffs must show that their claim is likely to succeed. A grant of the injunction will therefore set the stage for the remainder of the New York litigation. If the court agrees that DraftKings and FanDuel are likely to succeed on the merits, one can project that it will subsequently rule in favor of the two companies, thus finding Schneiderman’s ban as illegal.

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