Legal showdown: DraftKings vs Hermalyn, a battle of jurisdictions

Lea Hogg July 9, 2024

The key players of a high-profile legal drama between DraftKings, a sports betting giant based in Massachusetts, and Michael Hermalyn, (picutred above on the right), the erstwhile former head of VIP at DraftKings who now serves as the president of Fanatics, a rival company based in California, is making headlines again. The competitive legal battle that is currently underway could set a precedent for the industry.

The conflict started when Hermalyn transitioned from DraftKings to Fanatics, leading DraftKings to initiate a lawsuit. They alleged that Hermalyn had breached his non-compete agreement and misappropriated confidential information. In a countermove, Hermalyn launched a lawsuit to nullify his non-compete agreement, contending that it should be governed by California law, which typically invalidates such agreements.

This case has escalated to the U.S. Court of Appeals, where a heated debate is ongoing about whether the dispute should be governed by California or Massachusetts law. Hermalyn’s legal counsel argues that California has a significantly greater interest in the case and that its law should apply, despite the contract stipulating Massachusetts law.

State laws and personal grudges

In contrast, DraftKings asserts that the district court correctly applied Massachusetts law, pointing to Hermalyn’s repeated acceptance of Massachusetts choice-of-law provisions in return for considerable compensation. They further argue that Massachusetts has the most substantial connections to the dispute, given that Hermalyn frequently worked there and allegedly solicited employees based in Massachusetts.

DraftKings downplays Hermalyn’s connections to California, describing them as minimal and strategically crafted to dodge contractual obligations. They maintain that even in the absence of the choice-of-law provisions, Massachusetts law would still govern under the “most significant relationship” test, a principle established in First Circuit precedent.

The case has taken a contentious turn, with both parties engaging in a verbal duel both within and outside court filings. In a recent filing, DraftKings sought to strike “immaterial, impertinent, and scandalous” accusations from one of Hermalyn’s briefs from the record. Hermalyn had accused DraftKings CEO Jason Robins (photo above on the left), of orchestrating a concerted campaign to ruin him.

In response, Hermalyn’s attorneys stated: “DraftKings seeks through this lawsuit to stifle legitimate competition by targeting Michael Z. Hermalyn, its former employee and now an employee of emerging competitor Fanatics.” They also alleged that Robins was deeply affected by Hermalyn’s move to Fanatics and had a history of retaliating against employees who left.

This case sheds light on the fiercely competitive nature of the sports betting industry, where companies like DraftKings and Fanatics are in constant competition for market share. The outcome of this case could potentially influence future employment law cases and the enforceability of non-compete agreements.

As the dispute between DraftKings and Fanatics continues to evolve, the resolution of this case could establish a precedent for future disputes involving non-compete agreements and the application of state laws in the rapidly changing landscape of sports betting.