Court skeptical of ex-DraftKings exec's appeal of Fanatics work restrictions
By Nate Raymond
July 22 (Reuters) -A federal appeals court on Monday appeared likely to reject a former DraftKings DKNG.O executive's bid to overturn an injunction that severely restricts the type of work he can do after he joined sports betting rival Fanatics.
Christopher Michel, Michael Hermalyn's lawyer, told a three-judge panel of the Boston-based 1st U.S. Circuit Court of Appeals that his client's non-compete agreement with DraftKings was clearly unenforceable in his new home state of California.
Yet judges on the panel appeared skeptical of Michel's contention that California's broad prohibition on non-competes warranted applying that state's laws instead of Massachusetts' to the dispute.
"What's your litmus test or scale here for saying that California's interest in not enforcing non-competes clauses is deeper or higher or more significant than Massachusetts' interest in enforcing these clauses in certain well-defined circumstances?" asked U.S. Circuit Judge William Kayatta.
Thomas Dupree, a lawyer for Boston-based DraftKings, said California's interest in the case was slim compared to that of Massachusetts, where the company was based when Hermalyn worked for the company and where the agreement was executed.
He called the dispute a "paradigmatic case for why Massachusetts businesses need protection from this sort of thing," saying Hermalyn had stolen key trade secrets from DraftKings when he decided to move to California and join its rival.
"What happened here was egregious," he said.
Fanatics, best known for selling sports jerseys and merchandise, launched its sportsbook last year. DraftKings has sought to block Hermalyn, who oversaw its relationships with its largest VIP customers, from working there.
In April, DraftKings secured the injunction from U.S. District Judge Julia Kobick in Boston restricting Hermalyn's work at Fanatics after filing a lawsuit accusing him of violating his non-compete and non-solicitation agreements and of misappropriating trade secrets before joining Fanatics.
Hermalyn, who moved to California prior to joining Fanatics on Feb. 1 as the president of its VIP program, denies stealing trade secrets and has filed a separate lawsuit challenging the non-compete agreement in California.
Just last week, Los Angeles Superior Court Judge Tony Richardson in that case concluded that Hermalyn was likely to prevail on the merits of his case under California law.
But he declined to issue a preliminary injunction, saying doing so would effectively enjoin the Massachusetts lawsuit itself.
Senior U.S. Circuit Judge O. Rogeriee Thompson during Monday's arguments acknowledged that litigation as showing "California thinks it has a role in the case." But she said it was "still not clear to me why California's policy concerns have greater import than Massachusetts.'"
The case is DraftKings Inc v. Hermalyn, 1st U.S. Circuit Court of Appeals, No. 24-1443.
For DraftKings: Thomas Dupree of Gibson Dunn & Crutcher
For Hermalyn: Christopher Michel of Quinn Emanuel Urquhart & Sullivan
Read more:
Ex-DraftKings executive appeals restrictions on work at Fanatics
Ex-DraftKings exec denies accessing trade secrets before Fanatics job jump
DraftKings trade-secret case is 'character assassination,' Fanatics exec says
Ex-DraftKings exec can work at Fanatics, can't solicit clients during Super Bowl: judge
DraftKings sues former executive for taking secrets to sports-betting rival
Reporting by Nate Raymond in Boston
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