Private Equity File Motion to Dismiss FanDuel Founders Case

Private equity firms embroiled in the ongoing legal battle that ensued following sports betting and fantasy sports operator FanDuel’s sale to Paddy Power Betfair in 2018 for $559 million have struck back against allegations they breached their fiduciary duties. 

Defendants, including FanDuel Group, Los Angeles-based investment firm Shamrock Capital Advisors, American global investment company Kohlberg Kravis Roberts & Co. (KKR), and Fanatics Betting & Gaming chief executive officer Matthew King filed a motion to dismiss the case.

“Hollow” Claims Invoked 

The motion, which was filed in the New York County Supreme Court and represents the freshest move in the six-year legal quarrel between the parties, described the claims brought against the defendants by plaintiffs including co-founder Nigel Eccles and dozens of early investors and employees as “hollow.”

According to the same claims, the defendants laid plans to undervalue the company and stop common shareholders from being paid. 

The plaintiffs submitted a second amended complaint in mid-August in which they detailed the new allegations following the completion of discovery.

In the amended complaint, the plaintiffs alleged that private equity investors “completely wiped out FanDuel common shareholders’ interests in the company”

The case was brought back to life in May after it was originally dismissed by New York’s Appellate Division, with the court explaining the claims regarding the breach of contract had been legitimate. 

The Scots Law Controversy

The application of Scots law, which is Scotland’s mixed legal system that contains both civil law and common law elements, has represented an important element in the case that was first filed in the country, but it also represented a critical factor in the Appellate court seeking to dismiss.

According to attorneys representing the defendants, the fresh allegations and recently cited documents from the plaintiffs have lifted “the curtain on this case, exposing that their claims are, and always have been, hollow.”

“Plaintiffs’ own concessions and exculpating documents make clear that, as a matter of law, there was no fiduciary breach or any other wrongdoing,” they further said, adding that the complaint should be dismissed.

The Company By-Law That Favored Preferred Shareholders 

While the plaintiffs used the new complaint to argue that FanDuel’s directors and executives had conspired to purposefully undervalue the company, the defendants have maintained that the 2018 sale was necessary to rescue FanDuel from financial collapse as it was mismanaged by the then CEO who had run it “into the ground.”

The plaintiffs further explained that the undervaluation was done with the help of a company by-law that allowed squeezing out common shareholders in case of a sale while allowing preferred shareholders to benefit from maximum rewards.

The defendants’ most recent filing explained this could not have been possible since they held far more common shares in total compared to the plaintiffs.

As a result of the purchase, preferred shareholders gained control over FanDuel’s entire 39% share in the new entity which they decided to sell two years later for $4.2 billion.

The plaintiffs argued the $559 million valuation had been lowered artificially since it did not take into account the Professional and Amateur Sports Protection Act decision from days earlier, which had given the green light to sports betting following state-by-state legalization.