Ex-DraftKings executive loses appeal of Fanatics work restrictions
By Nate Raymond
BOSTON, Sept 26 (Reuters) -A federal appeals court on Thursday rejected a former DraftKings DKNG.O executive's bid to overturn an injunction that severely restricts the type of work he can do now that he has joined its sports betting rival Fanatics.
The Boston-based 1st U.S. Circuit Court of Appeals rejected Michael Hermalyn's bid to have California law applied to the dispute over his non-compete agreement with DraftKings, which would have rendered it unenforceable, and instead held Massachusetts law governed.
"Massachusetts and California aren't exactly on the same page when it comes to non-compete agreements," Senior U.S. Circuit Judge O. Rogeriee Thompson acknowledged in her opinion for the three-judge panel.
She noted that Massachusetts, where DraftKings is based, generally allows non-competes for higher-level employees like Hermalyn, while California, where he now lives, largely bans such agreements unless they fit within a few narrow exceptions.
Given that backdrop and the facts of the case, "we can't say that Hermalyn has shown (as he was required to do) that California's 'interest' in pursuing its policy is not just 'greater' than Massachusetts's, but is 'materially' so," Thompson wrote.
Lawyers for Hermalyn did not immediately respond to requests for comment, nor did DraftKings. A spokesperson for Fanatics declined to comment.
DraftKings sued Hermalyn, its senior vice president of growth, after he moved to California and resigned on Feb. 1 ahead of the Super Bowl to join Fanatics, a company best known for selling sports jerseys and merchandise that last year launched its own sportsbook.
DraftKings sought to block Hermalyn, who oversaw its relationships with its largest VIP customers, from working for Fanatics, which had hired him to help build out its own nascent team catering to VIP clients.
DraftKings accused him of violating his non-compete and non-solicitation agreements and alleged he misappropriated trade secrets before joining Fanatics and tried to poach some of its employees.
It secured a preliminary injunction in April from U.S. District Judge Julia Kobick in Boston that severely restricted the work he could do at Fanatics but that stopped short of barring him from working at the company.
She cited evidence that Hermalyn in the days before resigning from DraftKings used unauthorized means to transfer DraftKings documents to himself and accessed some while staying at the Los Angeles home of Fanatics CEO Michael Rubin.
The judge enjoined him for a 12-month time period starting when he began his new job on Feb. 1 from providing services relating to any aspects of DraftKings' business that he was involved in or for which he had received confidential information.
Hermalyn denies stealing trade secrets and filed a separate lawsuit challenging the non-compete agreement in California.
He has argued that California law should apply because not only does he live there now but also because that's where the Fanatics subsidiary he heads is based, giving the state a greater interest in the matter.
A week before the 1st Circuit heard arguments in the case, a California state court judge concluded that Hermalyn was likely to prevail on the merits of his case under California law. But the judge declined to issue a preliminary injunction, citing the Massachusetts lawsuit.
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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