DraftKings successfully lobbied the District Court of Massachusetts for a preliminary injunction against a former executive accused of stealing confidential company information to take to a rival.
On Tuesday, the court issued a preliminary injunction against Michael Hermalyn, the former head of VIP operations at DraftKings before making a sudden move to Fanatics for a similar role at the end of January. The two sides have been engaged in court since then concerning Hermalyn’s nondisclosure and noncompete agreements signed with DraftKings.
The preliminary injunction was granted because of DraftKings likelihood of success in the case, the court said. Hermalyn’s requests for a stay or dismiss were denied.
“Since, as explained, Hermalyn likely misappropriated DraftKings’s confidential information and breached his noncompetition agreement through his employment at Fanatics, DraftKings has established that it would suffer irreparable harm absent injunctive relief,” the ruling said.
Details of preliminary injunction
Hermalyn is restricted by the preliminary injunction in four ways. The biggest is that until Feb. 1, 2025, Hermalyn cannot provide services to a competing company, Fanatics included, concerning anything that relates “to any aspect of the Business of the Company (as defined in the Noncompetition Covenant) for which Hermalyn performed services or received Confidential Information at any time during the six-month period prior to February 1, 2024.”
That means Hermalyn can still work for Fanatics as long as it does not involve anything he used to do for DraftKings for another nine months. Similarly, he cannot solicit, hire or help someone else hire anyone working for DraftKings until next February.
He cannot use any confidential information, defined as such in the agreement he signed with DraftKings on Aug. 31, 2020. He also cannot disclose any confidential information, or remove or transfer confidential information.
Finally, he is not allowed to move, destroy, delete, alter or otherwise dispose of anything containing confidential information.
Fanatics statement on ruling
While Fanatics is disappointed in the outcome, Hermalyn will work with Fanatics to build the business as he is allowed, a company spokesperson said in a statement:
“Although we disagree with certain aspects of the Court’s ruling, we appreciate that the Court rejected DraftKings’ efforts to prevent Mike from working for Fanatics. Mike is looking forward to rolling up his sleeves and building Fanatics’ business consistent with the Court order. The Court’s order is preliminary, and Mike eagerly awaits his opportunity to present his case on the merits based on a full record.
“It’s unfortunate that DraftKings’ cheap attempt at petty retribution against a former employee – who simply wanted to take advantage of a better opportunity for himself and his family – will now undoubtedly continue to be used to instill fear and intimidation across DraftKings’ entire employee base. Those employees, now scared into staying in that toxic culture, will be the real losers in this case.
“We’re also a bit dismayed at the breadth of the Court’s ruling in light of the FTC’s recent rulemaking designed to promote employee mobility and free competition – but Mike is committed to advocating for what is fair and just in the final resolution of this matter.”
FTC ruling not for current litigation
Fanatics referenced the recent ruling from the Federal Trade Commission that bans the use of noncompetes.
Existing noncompetes for more than 99% of workers covered by them are no longer enforceable under the rules. Existing noncompetes for senior executives can remain in force, but no new noncompetes can be entered.
Notably, the rule does not affect current litigation.
DraftKings ‘pleased’ with outcome
DraftKings secured “another victory” with the preliminary injunction granted, the company said in a statement:
“Today’s ruling by the Court is another victory for DraftKings in its effort to hold Mr. Hermalyn accountable for his brazen attempt to clone DraftKings’ successful VIP program by stealing DraftKings’ employees and trade secrets. We are pleased the Court enforced Mr. Hermalyn’s non-competition obligations in the United States, including ordering him to cease providing services for Fanatics relating to the work he performed for, or the information he obtained from, DraftKings.
“The Court also correctly ordered Mr. Hermalyn not to solicit DraftKings employees, not to use any confidential company information, and not to destroy or delete documents containing DraftKings’ confidential information. In reaching this result, the Court rightly saw through Mr. Hermalyn’s lies and deception, noting that the evidence suggests that Mr. Hermalyn ‘struggled with candor to the court’ and describing his testimony as ‘not credible,’ ‘evasive,’ and ‘[a]t best…highly misleading.’
“Finally, the Court denied Mr. Hermalyn’s motion to dismiss or stay the case against him. DraftKings looks forward to continuing to prosecute its claims against Mr. Hermalyn to ensure he is held fully accountable for violating his legal obligations.”
Court outlined likely DraftKings wins
After recapping the information to date, the court’s 60-page ruling gets into the likelihood of success on the merits of the case.
Hermalyn argued that this case should be heard in California, where he is suing to have his noncompete nullified since the state does not recognize them. But the court ruled California’s interest in the case is “not materially greater” than that of Massachusetts: “Any harms flowing from Hermalyn’s likely violation of his noncompetition, non-solicitation, and non-disclosure agreements will be felt by DraftKings in Massachusetts, not California.”
The court also found that DraftKings established its noncompetition agreement is enforceable “with a narrower geographic scope,” so DraftKings likely will succeed in proving Hermalyn breached that agreement.
DraftKings also established that it is likely to succeed on the claim that Hermalyn breached his nondisclosure agreement, with the court referencing him removing or transferring confidential information from DraftKings’ internal systems “without its authorization.”
Court believes Hermalyn solicited DraftKings employees
One of the bigger parts of the case focuses on the details of phone calls Hermalyn had with two DraftKings employees, Andrew Larracey and Hayden Metz.
Both men told the court a similar version of events, including Hermalyn discussing potential salary details with them. Hermalyn denied offering jobs and instead said they approached him about potentially working for Fanatics, but the court did not believe his story.
“Having evaluated the evidentiary submissions and viewed the witnesses’ testimony, the Court concludes that Larracey and Metz testified credibly and Hermalyn’s account of the phone calls is not credible,” the ruling said. “Larracey and Metz’s accounts of the phone calls were consistent with one another.
“… In light of the credibility of Metz and Larracey’s directly contradictory testimony and the documentary record, the Court does not credit Hermalyn’s denials.”
