Federal Judge Rules Against DraftKings; Case Moves Back To Tennessee Court

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DraftKings Tennessee Court Case (1)

A federal judge has denied the attempt by daily fantasy sports site DraftKings to move a Tennessee lawsuit to federal court.

In a June 30, 2016 decision recently obtained by Legal Sports Report, Judge Harry S. Mattice, Jr., granted plaintiff Erica Miller’s motion to continue her case in a local Tennessee court. DraftKings had sought to have the lawsuit heard in a federal courthouse.  A copy of the entire ruling can be found here.

The decision represents one of the first — if not the first — formal rulings against a leading DFS provider.

Overview of Miller v. DraftKings

The case stems from a spouse suing to recover money allegedly lost by her husband.  

According to Judge Mattice’s decision, plaintiff Erica Miller’s lawsuit alleged that DraftKings operated “a daily and weekly fantasy sports website that amounts to an unlawful gambling enterprise and/or lottery” under Tennessee state law.

The plaintiff claimed damages of $46,400.  Miller filed her lawsuit against DraftKings on April 1, 2016, in Chancery Court of Greene County, Tennessee.

Later in April, DraftKings filed legal papers to shift the case from state court to federal court. Miller contested the shift, desiring to keep the case at the local level.  

Judge Mattice wrote that the “sole issue” in the federal-state court debate was whether the amount in controversy exceeded $75,000.  By rule, federal courts only hear cases worth $75,000 or more. Smaller cases stay with state-level courts.  An email excerpt included by Judge Mattice in his decision indicated that Miller’s attorneys offered to settle the case for $74,000, just shy of the threshold amount.  

DraftKings made a handful of legal arguments as to why the case should be valued at $75,000 or more, despite the fact that the plaintiff was only claiming damages of $46,400.  In one, DraftKings argued that the judge should consider possible punitive damages in the case even though the plaintiff never sought such extra damages.  Judge Mattice disagreed with each of DraftKings’ claims and ruled that the case should be “remanded” to Tennessee state court where it was initially filed.

Judge Mattice’s decision made no mention of Tennessee’s recent move to enact DFS-enabling legislation.  

What is the impact of the case?

Judge Mattice’s decision only pertains to a preliminary issue in the case — where the litigation should take place. The merits of the case have yet to be decided.  

However, the decision does provide a hint as to how DraftKings’ litigation strategy differs from its legislative stance.  In litigation, the Miller case indicates that DraftKings would prefer lawsuits to be heard in federal court. Such a stance makes sense from a consistency perspective.

In contrast, fantasy sports bills are moving forward on a state-by-state basis, with considerable resources devoted to lobbying different state legislatures. Despite a Congressional hearing on DFS in May, there does not appear to be any active lobbying for a federal solution to disparate state laws impacting the legality of daily fantasy play.   

As more of the lawsuits filed in late 2015 and early 2016 reach advanced levels, a clearer picture will emerge if the strategy employed by DraftKings in the Miller case is repeated elsewhere.  

Multi-district litigation looming

The Miller v. DraftKings lawsuit is not part of the large-scale consolidated class action lawsuit transferred to Boston in February.  

However, the June 30 decision in the Miller v. DraftKings case coincidentally came down the same day a massive 273-page consolidated class action complaint was filed with the federal court in Massachusetts hearing the merged lawsuit.

The case includes allegations of negligence, false advertising, fraud and illegal gambling. Plaintiffs in the case come from no fewer than 25 states, including Tennessee. Defendants include DraftKings, FanDuel and certain banks and payment processors. Also included as defendants are close to three dozen investors, a group that includes media companies, sports leagues and venture capital firms.

The Boston-based consolidated class action lawsuit in federal court could take years for a resolution.