Class action filed against DFS market leaders
News on 9 Oct 2015
News on 9 Oct 2015
More pressure was heaped on the beleaguered daily fantasy sports operators DraftKings and FanDuel Thursday when a class action was filed against them by a Kentucky resident – the second such action following a ‘bait and switch’ class action claim filed in Florida last year but since abandoned (see previous report).
The new litigation was filed in the Southern District of New York by one Adam Johnson of Kentucky, who claims damages for alleged negligence, fraud and misrepresentation, civil conspiracy, unjust enrichment, and violations of the Kentucky Consumer Protection Act, New York Deceptive Act and New York False Advertising Law arising from the activities of the two market leaders.
Johnson has invited any US residents who have used the sites to join him in suing the two companies over the widely publicised allegedly “insider” scandal still raging around FanDuel and DraftKings .
The case appears to be based on Johnson’s contention that material misrepresentations and omissions fraudulently induced DFS players to deposit money “which ultimately went to Defendants and their employees through fees and contest prizes,” claiming that access to sensitive in-house information relevant to the competitions gives company employees a significant edge over other contestants.
In fact, Johnson claims, he would not have participated in DFS competitions had he been aware that the companies condoned their employees competing against him and other DFS fans.
The filing also alleges that an examination of the winnings record of the DraftKings employee at the centre of the “insider” furore – Ethan Haskell – shows that this individual enjoyed a “remarkable” increase in successful betting since leaving his employment at a well-known DFS forum and starting work at DraftKings.
And it claims that although DraftKings CEO Jason Robins was aware of the dangers of his employees playing on rival sites, he did nothing to halt the activity until the “insider” scandal hit the headlines.
Johnson and other players face several obstacles enshrined in the T&Cs of both companies which include a prohibition against class actions, that cases be heard in the home states of the companies Massachusetts (DraftKings) and New York (FanDuel), and a requirement that individual cases be settled via an arbitration process.
Meanwhile, more politicians have commented on the scandal: Nevada Republican Representative Dina Titus has called on the House Committee on Energy and Commerce to institute an investigation into DFS activities, joining Nevada Senator Harry Reid and New Jersey Representative Frank Pallone who have pressed for similar Congressional action.
Joining the fray too is Connecticut’s Democratic Party Senator Richard Blumenthal, who has backed Pallone’s call for a Federal Trade Commission enquiry into allegations that DFS companies engage in deceptive and misleading advertising, and adding that the Department of Justice should be called in to investigate the possibility of fraudulent activity in the “insider” row.
The “deceptive and misleading” label presumably refers to growing reports that ordinary DFS players are competing against highly skilled and informed “sharks” in DFS competitions and are at a significant disadvantage, contrary to advertising on success and big money prizes.
In what appears to be a crisis control campaign, the DraftKings CEO has been doing the rounds of the US media protesting the legality of daily fantasy sports and giving the assurance that no foul play has taken place, and that both companies have now banned their employees from participating in DFS contests.
He also revealed that top US law firm Greenberg Traurig has been hired to conduct a full review of sensitive data in the company’s possession including who has accessed these records and how often in the past. Robins said the results of this investigation would be made public in the interest of transparency.
