DraftKings Scores Another Victory in Legal Case Against Former Senior VP

The 1st US Circuit Court of Appeals in Boston has upheld a pivotal ruling that limits former DraftKings executive Michael Hermalyn from performing his full work-related duties at sports betting rival Fanatics. The court denied Hernalyn’s appeal to lift an injunction limiting his role at Fanatics, which he joined after resigning from DraftKings in January this year.

Non-Compete Agreements Face Increasing Scrutiny in Some States

This legal began after former DraftKings senior VP of growth Hermalyn relocated to California and resigned on 1 February 2023, just before the Super Bowl. He joined Fanatics, a company that had recently entered the sports betting industry after the launch of its sportsbook. DraftKings reacted swiftly, quickly suing Hermalyn for breaching non-compete and non-solicitation agreements.

DraftKings alleges Hermalyn misappropriated trade secrets and attempted to recruit its employees for Fanatics. Hermalyn had been overseeing VIP customer relations at DraftKings, and Fanatics later hired him to establish a similar team catering to high-value clients. Hermalyn has denied the theft of any trade secrets and filed a counterclaim in California, where non-competes are mostly unenforceable.

Massachusetts and California aren’t exactly on the same page when it comes to non-compete agreements.

Senior US Circuit Judge O. Rogeriee Thompson

Hermalyn’s legal team argued that California law should apply to his case since he now resides there and the Fanatics division he heads operates in the state. By contrast, the law in Massachusetts, where DraftKings conducts business, allows non-compete agreements for high-level employees like Hermalyn. DraftKings argued that the contract he signed should be governed by Massachusetts law.

DraftKings Seems to Have the Initiative

A preliminary injunction, handed down by US District Judge Julia Kobick in April, restricts the work Hermalyn can do at Fanatics for one year starting from his 1 February resignation. The injunction barred Hermalyn from engaging in any services related to DraftKings’ business areas directly involving him or his work involving confidential information.

Judge Kobick cited evidence that, shortly before his resignation, Hermalyn had been using unauthorized means to transfer documents from DraftKings to himself. The court also observed that he accessed some of these documents while a guest in the Los Angeles home of Fanatics Chief Executive Officer Michael Rubin.

Attorneys for Hermalyn and DraftKings did not respond to requests for comment, but the defendant remains adamant that he is in the right. The 1st Circuit Court, sitting in Boston, previously ruled unanimously that Massachusetts law controls the dispute, tilting the case in DraftKings’ favor. However, the lawsuit is far from over, and we may yet see surprise turnarounds.