The crux of a lawsuit brought by Boston-based bookmaker, DraftKings, against industry rival, Fanatics, alleges a former high-level executive at DraftKings allegedly brought customer lists and trade secrets to his new employer, Fanatics, and is in violation of his non-disclosure agreement.
Industry Espionage
As OddsTrader reported back in February, former DraftKings’s head of VIP operations, Michael Hermalyn, negotiated with Fanatics to assume ostensibly the same role with Fanatics. Not only did Hermalyn leave his position roughly two weeks before the biggest betting event of the year, the Super Bowl, but he also delivered, among other things, a customer list of VIPs to his new employer and tried to recruit two other DraftKings executives.
According to DraftKings’ filings, Hermalyn “hatched a secret plan over the past year to steal and use confidential information, solicit customers and employees, and join a key competitor, Fanatics, Inc. (“Fanatics”), in brazen violation of his agreements with and duties to DraftKings.”
What Happened
Hermalyn allegedly used a cover story stating he had to travel to Philadelphia to pay his respects to a friend who had passed away in Philadelphia but instead flew to Los Angeles to sign a deal with Fanatics. While at Fanatics’ LA offices, the lawsuit states, Hermalyn “downloaded DraftKings’ confidential business plans for the Super Bowl while sitting in Fanatics’ offices.”
The potential harm done to DraftKings was also articulated in the lawsuit, stating, “Hermalyn knows DraftKings’ playbook on how to engage and retain VIP clients.”
“On information and belief, Hermalyn, acting in concert with Fanatics, timed his departure and theft of confidential information to coincide with the critical days leading up to the Super Bowl to further a scheme to irreparably interfere with DraftKings’ customer and business relationships by pursuing those relationships at Fanatics using the confidential information and goodwill that he obtained at DraftKings.”
Moreover, Hermalyn is accused of trying to recruit two DraftKings executives, Andrew Larracey and Hayden Metz, to join Fanatics on his very first day. Hermalyn had previously stated he did not try to recruit any DraftKings employees but those claims were contradicted by both Larracey and Metz.
Next Legal Round
DraftKings is seeking legal recourse in the form of Hermalyn being denied the opportunity to work for Fanatics after violating his non-compete agreement and being prohibited from diverting any clients from DraftKings to Fanatics. DraftKings did win a partial victory when U.S. District Court Judge Julia E. Kobick ruled that Hermalyn could remain with Fanatics but cannot reveal any confidential information and is barred from soliciting DraftKings’ employees to join his new company.
“We are pleased that the judge granted a temporary restraining order in favor of DraftKings ordering Mr. Hermalyn not to solicit DraftKings employees or customers, and not to use any confidential company information,” a DraftKings spokesperson said in a statement.
More Accusations
Moreover, Hermalyn has also been accused of engaging “in unwelcome physical contact with a female employee without her consent” and making “inappropriate comments regarding his female colleague’s physical appearance.”
An anonymous source with Fanatics replied, “This is just sour grapes. DraftKings is understandably upset that one of its employees left for the greener pastures at Fanatics. The fact that they are trying to drum up ridiculous allegations on one of their well-respected executives in an attempt to ruin his reputation sheds some light on why employees may be choosing to leave that organization.”
The case will ultimately be decided on Hermalyn’s contention that the non-disclosure agreement is not valid because he changed residencies, moving from Massachusetts to California.
