A Look At The First Class Action Lawsuit Filed Against DraftKings And FanDuel

A class action lawsuit led by plaintiff Adam Johnson has been filed in the Southern District of New York against DraftKings and FanDuel (two other class action lawsuits have been filed against DraftKings and FanDuel since, with more likely to come). The complaint alleges claims of negligence, fraud and misrepresentation, violation of the Kentucky Consumer Protection Act, civil conspiracy, violation of the New York Deceptive Acts & Practices Law, violation of the New York False Advertising law, and unjust enrichment. The class claims that the operations of these daily fantasy sports websites violate Kentucky, Massachusetts and New York law. The actions that gave rise to this class action lawsuit was a DraftKings employee posting ownership percentages online before they were supposed to be publicly available and the implication that he could have then used this data to win $350,000 on FanDuel. Additionally, DraftKings employees have won at least $6,000,000 on FanDuel. Regarding the claim of negligence, the class alleges that both DraftKings and FanDuel owed duties to its participants to use reasonable care to provide true, reliable and safe information and contests. They purportedly breached its duty by failing to use reasonable care to prevent persons with inside information and data from competing against its participants. Their negligence was supposedly the direct and proximate cause of the damage to the class. In order to prove a claim of negligence, the plaintiff must prove the following five elements:

  1. “Existence of a legal duty to exercise reasonable care”
  2. “A failure to exercise reasonable care”
  3. “Cause in fact of harm by negligent conduct”
  4. “Harm in the form of actual damages”
  5. “Proximate cause showing that harm is within the scope of liability”

In the allegation of fraud and misrepresentation, the class states that DraftKings and FanDuel knowingly made false material misrepresentations in order to induce the class into participation on their sites. They failed to disclose that employees, agents, owners and/or others with non-public information would use this information in competition against its participants. The class relied on these false material misrepresentations to their detriment and suffered financial injury, harm and damages. In order to recover in a claim of fraudulent misrepresentation, the plaintiff must prove the following six elements:

  1. “A representation was made”
  2. “The representation was false”
  3. “When the representation was made it was known to be false or made recklessly without knowledge of its truth”
  4. “It was made with the intention that the plaintiff would rely on it”
  5. “The plaintiff relied on the representation”
  6. “As a result of the representation, the plaintiff suffered damages”

According to the Kentucky Attorney General, the Kentucky Consumer Protection Act protects consumers from “unfair, false, misleading or deceptive acts or practice in trade or commerce.” DraftKings and FanDuel market, sell and promote goods and services to Kentucky consumers though television, radio and internet advertising. The class alleges they suffered damages as a result of the violations of the Kentucky Consumer Protection Act and are entitled to recover actual damages and other equitable relief pursuant to said act. According to section 367.220 of the Kentucky Consumer Protection Act, “Any person who purchases or leases goods or services primarily for personal, family or household purposes and thereby suffers any ascertainable loss of money or property, real or personal, as a result of the use or employment by another person of a method, act or practice declared unlawful by KRS 367.170, may bring an action…to recover actual damages.” The class further alleges that the actions by DraftKings and FanDuel resulted in civil conspiracy by engaging in a corrupt or unlawful combination and/or agreement with each other to do an unlawful act and continued their actions after being discovered. They were negligent and/or committed fraud by agreeing to allow their employees to partake in tournaments on their competitor’s site and not informing the participants. Further, these acts were done in order to allow their employees and officers to profit and to attract new players to their sites. The elements of civil conspiracy include:

  1. “Two or more persons”
  2. “Unlawful objective to be achieved”
  3. “An agreement on the objective or mean to achieve the objective”
  4. “One or more overt acts in furtherance of the conspiracy”
  5. “A resulting injury or damages”

The New York Deceptive Acts and Practices Law considers “All deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service” in the state of New York to be unlawful. The class alleges that DraftKings and FanDuel committed unfair or deceptive acts and practices in New York by making fraudulent material misrepresentations. The class alleges that the violations of the law resulted in injury as they paid entry fees in order to participate in tournaments on these daily fantasy sites. According to the law, any person who has been injured as a result of a violation of this law may bring an action to seek actual damages or fifty dollars, whichever is greater. The New York False Advertising Law considers false advertising to be “advertising, including labeling, of a commodity, or the kind, character, terms or conditions of any employment opportunity if such advertising is misleading in a material respect.” The class alleges that the advertisements by DraftKings and FanDuel were misleading in a material way by promoting fair play on their sites. The class alleges that the violations of the law resulted in injury as they paid entry fees in order to participate in tournaments on these daily fantasy sites. According to the law, “In determining whether any advertising is misleading, there shall be taken into account (among other things) not only representations made by statement, word, design, device, sound or any combination thereof, but also the extent to which the advertising fails to reveal facts material in the light of such representations with respect to the commodity or employment to which the advertising relates under the conditions prescribed in said advertisement, or under such conditions as are customary or usual.” The last claim brought by the class is unjust enrichment, which is defined as “The retention of a benefit conferred by another, that is not intended as a gift and is not legally justifiable, without offering compensation, in circumstances where compensation is reasonably expected.” The class alleges that DraftKings and FanDuel conferred a benefit once funds were deposited in order to participate in tournaments on their sites. The class further alleges that DraftKings and FanDuel were unjustly enriched by receiving funds which were unjust and inequitable due to their fraudulent material misrepresentations. The elements of unjust enrichment include:

  1. “A benefit conferred by one person on another”
  2. “Conferee must appreciate or have knowledge of the benefit conferred”
  3. “Acceptance or retention by the conferee of the benefit under such circumstances as to make it inequitable for the conferee to retain the benefit without payment of its value”

Resources: Case 1:15-cv-07963 Class Action Complaint Elements of Negligence: https://www.law.cornell.edu/wex/negligence Elements of Fraudulent Misrepresentation: https://www.law.cornell.edu/wex/fraudulent_misrepresentation Kentucky Consumer Protection Act: http://www.lrc.ky.gov/statutes/statute.aspx?id=34922 Elements of Civil Liability: http://conspiracy.uslegal.com/civil-liability-for-conspiracy/ New York Deceptive Acts & Practices Law: http://codes.lp.findlaw.com/nycode/GBS/22-A/349 New York False Advertising Law: http://codes.lp.findlaw.com/nycode/GBS/22-A/350-a Definition of Unjust Enrichment: https://www.law.cornell.edu/wex/unjust_enrichment Reid, Brad A Brief Unjust Enrichment Primer, Huffington Post (Apr. 26, 2013), http://www.huffingtonpost.com/brad-reid/a-brief-unjust-enrichment_b_3163753.html

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