A ruling in New York could provide DraftKings and its defense a significant boost to similar lawsuits filed against it across the country.
DraftKings was granted its motion to dismiss a complaint that alleged that the company’s promotional terms regarding a “deposit bonus” rewarded to new customers were deceptive.
The class action suit, filed in the United States District Court for the Eastern District of New York last September, alleged that DraftKings “engaged in deceptive marketing to increase its sports betting platform userbase through a fraudulent and misleading promotion promising new users a $1,000 deposit bonus for signing up to its platform.”
The federal court disagreed with the plaintiff’s characterization of DraftKings’ promotion.
Lawsuit cited NY General Business Law
The basis of the plaintiff’s class action complaint stemmed from DraftKings’ alleged violation of sections 349 and 350 of the New York General Business Law. GBL § 349 prohibits “[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state,” and GBL § 350 prohibits “[f]alse advertising in the conduct of any business, trade or commerce or in the furnishing of any service in this state.”
The complaint references DraftKings’ marketing campaign in which it advertised a “$1,000 Deposit Bonus” as a reward for signing up to its sportsbook platform as the deceptive activity. The lead plaintiff argued that the promotion and its related advertisements were misleading in nature for three reasons:
- DraftKings “clearly promise that new customers who joined DraftKings would receive a $1,000 reward by simply making a deposit.”
- New customers could not have “reasonably understood” the terms and “actual costs and risks” associated with the promotion.
- Any disclosures provided by DraftKings failed to cure its misleading statements because they were not clearly and conspicuously presented to customers due to being “obscure[d] by other distracting elements on DraftKings website and mobile app.”
Court: not misleading to ‘reasonable consumer’
In addressing the parties’ competing arguments, the court noted the general rule for determining a deceptive act as one “that is likely to mislead a reasonable consumer acting reasonably under the circumstances.” In granting DraftKings’ motion to dismiss, the court held:
“Plaintiff fails to allege that the Promotion could deceive a reasonable consumer because the Promotional Terms fully disclosed the requirements to be eligible for the full value of the Promotion in a conspicuous manner.”
Specifically, the court reviewed DraftKings’ promotional terms at issue (see below) and determined the following:
- The top of the deposit screen prominently states in bold that users “will receive a 20% deposit bonus up to $1,000!,” and the entirety of the promotional terms are displayed in similar font size as all other text on the screen. The court found that the promotional terms were fully disclosed and that “[p]rior to depositing funds into a DraftKings account, a reasonable consumer would have seen the Promotional Terms that were displayed on the deposit screen.”
- A reasonable consumer would not be misled to think that merely signing up for an account would entitle them to the full $1,000 deposit bonus, because the promotional terms clearly specify that new customers can receive “up to $1,000” in bonus funds upon fulfillment of the requirements needed to obtain the full amount.
- The promotional terms and related disclosures were displayed in such an overt manner that “a reasonable consumer opening a DraftKings account would review the Promotional Terms in order to determine how to satisfy the Promotion requirements…”
Tactical advantage in ongoing litigation?
New York’s decision to grant DraftKings’ motion to dismiss comes at a key time as the company continues to defend against other lawsuits relating to its promotion(s), especially in cases where DraftKings can rely on or at least reference application of same the facts and/or circumstances reviewed by the New York court.
One such case is The City of Baltimore v. DraftKings, et al., in which DraftKings (along with FanDuel) are currently defending against claims that its business practices in the state are “deceptive and unfair” in violation of the city’s consumer protection ordinance. Like New York, Maryland reviews deceptive and/or misleading activity through the lens of a “reasonable consumer.” See, e.g., Sager v. Hous. Comm’n of Anne Arundel Cnty., 855 F.Supp.2d 524, 558 (D.Md.2012) (“The question of “whether a statement is ‘misleading’” under the Consumer Protection Act “is judged from the point of view of a reasonable, but unsophisticated consumer.”).
DraftKings was originally scheduled to file a motion to dismiss in the City of Baltimore before June 13; however, following DraftKings and Fanduel’s filing of a notice of removal, the parties have since been embroiled in a dispute over whether the United States District Court for the District of Maryland is the proper venue to determine the case.
The City of Baltimore filed a Motion to Remand on June 6, which motion has been fully briefed as of July 28. As a result, the deadline to file a motion to dismiss in the case has been pushed out 30 days following the Court’s ruling on Baltimore’s motion.
Should DraftKings be successful in using the court’s ruling in New York as a basis for dismissal in Maryland, it could trigger a string of other successful challenges in other courts as well, including, the most recent filing in Pennsylvania targeting DraftKings promotions in the state.
