447 F.Supp.3d 159
S.D.N.Y.2020Background
- Five plaintiffs who entered DraftKings MLB daily fantasy contests from 2017–2019 sued MLB, MLB Advanced Media, the Houston Astros, and the Boston Red Sox alleging fraud, negligence, unjust enrichment, and violations of state consumer-protection laws.
- Plaintiffs allege the Astros (and the Red Sox to a lesser extent) used electronic sign-stealing in 2017–2019, and MLB either knew and concealed that misconduct or failed adequately to police it.
- Plaintiffs claim defendants misrepresented or omitted facts to induce participation in DraftKings MLB DFS contests by portraying contests as a "game of skill" and assuring the integrity of baseball statistics.
- Plaintiffs base claims on public statements by MLB officials and team officials, MLB’s commercial ties with DraftKings, and MLBAM equity/partnership arrangements with DraftKings.
- Defendants moved to dismiss under Rules 8, 9(b), and 12(b)(6). The Court found plaintiffs failed to plead required elements (particularly reliance, duty to disclose, causation, and enrichment at plaintiffs’ expense) and dismissed the amended complaint with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Fraud — affirmative misrepresentations | Defs publicly said they protect integrity and promoted fantasy as a game of skill; plaintiffs relied and paid DFS fees | Plaintiffs cite few actual statements; many quoted remarks concern on-field integrity, not fantasy contests; plaintiffs did not plead they saw specific statements | Court: Most alleged statements not actionable; a few statements plausibly false but plaintiffs failed to plead specific, particularized reliance as required by Rule 9(b) |
| Fraud — omissions / duty to disclose | Defs knew of sign-stealing and had duty to disclose because nondisclosure induced plaintiffs to enter DFS contests | No transaction or special relationship between plaintiffs and defendants to impose disclosure duty; MLB’s public statements were to the public, not directed to DFS entrants | Court: No duty to disclose; Restatement §551 inapplicable absent party-to-party transaction; omission-based fraud claims dismissed |
| Negligence / negligent misrepresentation | Defs negligently failed to prevent or disclose sign-stealing and negligently misrepresented facts about integrity | No duty of care to fantasy players; no justifiable reliance; no transaction linking plaintiffs to defendants | Court: Negligence and negligent-misrepresentation claims dismissed for lack of duty and reliance |
| Consumer-protection statutes | Defs’ deceptive acts induced plaintiffs to pay DFS fees — state consumer statutes (MA, CA, TX, FL, CO, nationwide analogues) | Plaintiffs lack privity or sufficient nexus to the DraftKings transaction; claims sound in fraud and fail Rule 9(b) | Court: Claims dismissed — plaintiffs failed to plead causation/reliance and insufficient nexus/participation by defendants in the DFS transaction |
| Unjust enrichment | Defs were enriched via DraftKings fees, equity appreciation, and ancillary MLB revenues at plaintiffs’ expense | Plaintiffs do not allege how defendants’ benefits were tied to plaintiffs’ payments or came at plaintiffs’ expense | Court: Unjust enrichment dismissed for failure to show enrichment at plaintiffs’ expense |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (Supreme Court 2009) (pleading must contain sufficient factual matter to state a plausible claim).
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (Supreme Court 2007) (plausibility standard; discard legal conclusions).
- Lerner v. Fleet Bank, N.A., 459 F.3d 273 (2d Cir. 2006) (Rule 9(b) requires particularity as to fraud elements, including reliance).
- In re Elevator Antitrust Litig., 502 F.3d 47 (2d Cir. 2007) (at pleading stage, court accepts well-pleaded facts and draws reasonable inferences).
- Campaniello Imports, Ltd. v. Saporiti Italia S.p.A., 117 F.3d 655 (2d Cir. 1997) (fraud pleadings must raise a strong inference of fraudulent intent).
- Walsh v. TelTech Sys., Inc., 821 F.3d 155 (1st Cir. 2016) (causation required under Massachusetts consumer-protection law).