A class action lawsuit has been filed against DraftKings and FanDuel in federal court in the wake of a data leak that has rocked the daily fantasy sports industry.
What we know so far
The filing came in the U.S. District Court for the Southern District of New York, and it names both FanDuel and DraftKings as defendants. It is titled, “Johnson v. Fanduel, Inc. et al.” The listed plaintiff is Adam Johnson, a resident of Kentucky.
At issue in the case is the access to data that could have affected game integrity at the DFS sites. You can see in the filing in its entirety here.
The filing states “material misrepresentations and omissions fraudulently induced Plaintiff and the proposed classes to give Defendants money, which ultimately went to Defendants and their employees through fees and contest prizes.”
The counts raised by plaintiff
There are seven claims against the two DFS sites. According to the filing, the counts include (quotes directly from filing):
- Negligence: i.e. “Defendants failed to use reasonable care in communicating the information about safety and security of data, employee access to data and ability of employees to use material, non-public data to compete against Plaintiff and the proposed classes on other websites, or allow employees of other companies with material, non-public access to compete on the website where Plaintiff and the proposed classes competed.”
- Fraud and misrepresentation: i.e. “Specifically, and as detailed above, Defendants represented that their contests were fair games of skill. Defendants also willfully failed to disclose that employees, agents, owners and/or others with non-public information, data and access to Plaintiff and the proposed classes’ submissions would use this information to compete against Plaintiff and obtain an enormous increased chance to win, thereby greatly decreasing Plaintiff and the classes’ ability to use skill to win.”
- Violation of Kentucky Consumer Protection Act: i.e. “Defendants’ actions as described above are false, misleading, deceptive and/or unconscionable, in violation of the Kentucky Consumer Protection Act.”
- Civil conspiracy: i.e. “As detailed above, the Defendants engaged in a corrupt or unlawful combination and/or agreement with each other to do an unlawful act, and continued to act in concert after the act was discovered. … Specifically, by affirmatively agreeing to allow competitors’ employees to play on their own sites against their own players and concealing and not disclosing this to Plaintiff and the proposed classes, Defendants committed negligence and/or fraud.”
- Violation of the New York Deceptive Act: i.e. “By the acts and conduct alleged herein, Defendants committed unfair or deceptive acts and practices in the state of New York by making the misrepresentations described above.”
- Violation of the New York False Advertising Law: i.e. “The foregoing false advertisements are misleading in a material way because they fundamentally misrepresent the fair play available on their websites.”
- Unjust enrichment: i.e. “Defendants have been unjustly enriched in retaining the revenues derived from Plaintiff’s and the members of the proposed classes deposits and contest entries, which retention under these circumstances is unjust and inequitable because Defendants misrepresented the facts concerning the fair play available on their websites.”
Damages sought
The plaintiff seeks, among other things (directly from the filing):
- Damages suffered by Plaintiff and the proposed classes
- Restitution to Plaintiff and the proposed classes of all monies wrongfully obtained by Defendants
- Injunctive relief requiring Defendants to cease and desist from engaging in the unlawful, unfair, and/or deceptive practices alleged in the Complaint
- An order awarding declaratory relief, retrospective and prospective injunctive relief as permitted by law or equity, including enjoining Defendants from continuing the unlawful practices as set forth herein, and injunctive relief to remedy Defendants’ past conduct
The filing comes as the New York state attorney general is conducting an inquiry into both DraftKings and FanDuel.
Representatives from DraftKings and FanDuel told Legal Sports Report they had no comment on the lawsuit.
Do DraftKings and FanDuel’s terms of use give them shelter?
From the filing, the lawyers for Johnson argue for a class action:
Plaintiff deposited and risked at least $100 on DraftKings tournaments and contests, and without a class action in this Court would not be able to feasibly, economically or otherwise reasonably protect his rights, nor would any of the members of the proposed classes.
The first matter may be whether a class action can be brought at all against the two sites:
First battle in lawsuit against @FanDuel & @DraftKings: dismissal motion based on TOU calling for mandatory arbitration & no class actions
— Daniel Wallach (@WALLACHLEGAL) October 8, 2015
Initial reaction from attorneys on social media was that the matter may be headed to arbitration.
Expect FanDuel & DraftKings to file motions to dismiss, kicking the class action dispute to arbitration
— Darren Heitner (@DarrenHeitner) October 8, 2015
From DraftKings’ terms of use:
Any and all claims shall be arbitrated on an individual basis only, and shall not be consolidated or joined with or in any arbitration or other proceeding involving a Claim of any other party. You and DraftKings agree that the arbitrator shall have no authority to arbitrate any Claim as a class action or in any other form other than on an individual basis.
From FanDuel’s terms of use:
The parties further agree that any arbitration shall be conducted in their individual capacities only and not as a class action or other representative action, and the parties expressly waive their right to file a class action or seek relief on a class basis. YOU AND FANDUEL AGREE THAT EACH MAY BRING CLAIMS AGAINST THE OTHER ONLY IN YOUR OR ITS INDIVIDUAL CAPACITY, AND NOT AS A PLAINTIFF OR CLASS MEMBER IN ANY PURPORTED CLASS OR REPRESENTATIVE PROCEEDING. If any court or arbitrator determines that the class action waiver set forth in this paragraph is void or unenforceable for any reason or that an arbitration can proceed on a class basis, then the arbitration provision set forth above shall be deemed null and void in its entirety and the parties shall be deemed to have not agreed to arbitrate disputes.
The matter of DraftKings’ terms of use has been brought up in another case brought as a federal class action, in the Southern District of Florida. Per the terms of use, the court had the matter transferred to the District of Massachusetts.
SI’s Michael McCann took a look at the possible legal defense that will be mounted by DraftKings and FanDuel.
