A lawsuit brought against the company by one of the founders of FanDuel fell short in a New York appeals court.
The New York-based lawsuit followed a case brought in Scotland that failed to provide the relief Nigel Eccleswas seeking and ultimately was abandoned by the plaintiffs. Eccles’s efforts in New York State Court would, however, also prove fruitless as the defendants prevailed Thursday in the Appellate Division. The decision reverses an earlier ruling from the trial court, where Judge Andrea Masley allowed three of five causes of action to survive the defendants’ motions to dismiss.
Eccles, one of the founders of FanDuel, filed suit in 2020 against a variety of defendants, including FanDuel itself and former CEO Matt King, alleging that the 2018 merger with Paddy Power Betfair saw FanDuel’s acquisition price suppressed so that Eccles, other early investors, and more than 100 former employees were not able to capitalize on the deal because it did not exceed the stipulated price at which the plaintiffs were eligible for compensation.
What was FanDuel lawsuit by Eccles about?
As LSR reported in February 2020 when the complaint was filed, Eccles and more than 100 former employees sued FanDuel, a number of executives, and companies who helped merge the company Eccles co-founded with Paddy Power Betfair.
The 2020 lawsuit followed a 2018 lawsuit filed in Scotland under the Companies Act of 2006. The Scotland-based suit alleged that Nigel Eccles, Lesley Eccles, Tom Griffiths, and Rob Jones, co-founders and former executives at the company, were deprived of more than $120 million (USD). The suit alleged that the company was sold for less than it was worth, and in the wake of the Murphy decision, the company should have been worth more than the acquisition price Paddy Power Betfair paid.
Eccles and the other executives would strike out in Scotland, ultimately choosing to abandon the case.
On to the Big Apple
In 2020, a suit was filed in New York, adding to the founders as plaintiffs was the addition of more than 100 former employees of the company.
The terms of the FanDuel merger agreement saw the preferred shareholders (which included many of the groups behind the merger) entitled to the first $559 million of the deal. Amounts above the $559 million threshold would be distributed to the common shareholders, including the plaintiffs.
LSR reporting indicated those proceeds also included a 40% stake in the new FanDuel Group.
Despite what the sports betting world has become and a one-time reported valuation of $1.2 billion prior to the Murphy decision, the deal closed below the threshold necessary for the plaintiffs to receive compensation, leaving the founder of the company with an entitlement to nothing after the merger.
Earlier trial court decision
The trial court ruled the first and second claims alleging breach of the fiduciary duties by the director defendants, as well as King, had sufficient allegations in the pleading to survive the defendants’ motions to dismiss.
The defendants successfully argued that the claim as to a breach of fiduciary duty by KKR and Shamrock, who helped put the deal together, should be dismissed.
On the fourth claim of aiding and abetting a breach of fiduciary duty, the plaintiffs successfully survived the attempt to dismiss the claim. However, the fifth claim for unjust enrichment was deemed to be “duplicative” of the fourth claim and thereby dismissed. The defendants went two-for-five on their motion to dismiss but would appeal.
Latest FanDuel case decision
Nearly 10 months after the trial court’s ruling on the motions to dismiss, the New York Court’s Appellate Division First Judicial Department unanimously reversed the trial court’s ruling on the three claims that survived the motions to dismiss. The Appellate Division stated:
The first and second causes of action, both of which allege breach of fiduciary duty by directors and officers of FanDuel, are governed by Scots law. FanDuel is a Scottish company, incorporated in Scotland, and under the so-called internal affairs doctrine, relationships between a company and its directors and shareholders are generally governed by the substantive law of the jurisdiction of incorporation. Contrary to plaintiff’s argument otherwise, defendants did not consent to New York law (internal citation omitted).
The appeals court relied on a May 2018 board meeting where it was reportedly made clear that the directors were bound by UK law, more specifically, the Companies Act of 2006.
Ultimately, the appellate court determined:
As to the merits, plaintiffs have failed to state a claim for breach of fiduciary duty under Scots law, as Scots law states that directors generally owe fiduciary duties only to their company, not to its shareholders. While a director may owe a fiduciary duty to a shareholder in special circumstances, such circumstances are not present here.
The court went even farther, adding the aiding and abetting cause of action is not present under Scots law, but nonetheless, the claim fails because it necessitates a breach of fiduciary duty of which there was none.
The end of the road?
The plaintiffs in the case are not out of options, as they could still appeal the New York Court of Appeals (New York’s trial court is the Supreme Court, the appellate court is the Appellate Division, and the highest court is the Court of Appeals).
Given the money at stake, the plaintiffs will likely appeal. However, they have now had all five claims booted, which will mean they likely face long odds at the state’s highest court.