By: Jaqwaun Myles
The sports gambling industry has been one of highest revenue generating industries, recently reaching record revenue levels in 2023.[1] Ever since the U.S. Supreme Court overturned the Professional and Amateur Sports Protection Act of 1992, which prohibited sports betting outside of Nevada, sports betting has been opened up to numerous additional states.[2] Companies like DraftKings, FanDuel, and BetMGM, are three of the most downloaded and used sports betting apps by users in America.[3]
In February of 2024, the Senior Vice President of DraftKings, Michael Hermalyn, had resigned from the company.[4] Shortly after, Michael Hermalyn then accepted a position as the President of VIP Relations at Fanatics, a competing sports betting company. This sequence of events would have been fine in any other scenario except that Michael Heramlyn’s contract with DraftKings included a non-compete agreement.
As a result of the move by its former senior vice president, DraftKings filed suit against Hermalyn alleging that he misappropriated DraftKings trade secrets, confidential business information, and breached his contractual noncompete obligations[5] The non-compete agreement that Hermalyn signed was put in place to prevent Hermalyn from working for any competitor for a specified period of time after leaving DraftKings. This was put into place to help protect DraftKings’s trade secrets and other confidential information from getting into the hands of their competitors[6]
The agreement with Hermalyn and DraftKings was initially signed in Massachusetts, a state that generally enforces non-compete agreements.[7] California has traditionally prohibited non-compete agreements.[8] DraftKings’ position is that the lawsuit should be governed by Massachusetts law. Hermalyn’s position is that he moved to California because of the company, so he is arguing that this clause should not be enforceable under California governing law.[9] To support his claim further, he states that his relocation to California was legitimate, and that California’s laws should apply.[10]
In order to determine which laws apply in this case, courts will look at the choice of law provision for the forum state, which is Massachusetts.[11] The choice of law provision allows the parties to agree that a particular state’s laws will be used to interpret the agreement, even if they live in (or the agreement is signed in) a different state as long as they don’t violate public policy.[12]
Massachusetts being the forum state does not violate any public policy therefore the courts will look to the state with the most significant relationship to the transaction and the parties to determine the state law that would apply absent a choice of law provision.[13] This consists of looking at the place of contracting, the place of negotiation of the contract, the place of performance, the location of the subject matter of the contract, and the domicile, residence, nationality, place of incorporation, and place of business of the parties.[14]
When all these factors are analyzed, Massachusetts has a greater interest in this lawsuit than California would absent the choice of law provisions, therefore making Massachusetts the governing law. [15]
While Hermalyn mainly worked for DraftKings from New Jersey and New York, he made at least 25 trips to Massachusetts for work between May 2021 and November 2023, averaging about once every six weeks. [16] He does not argue, nor is there any proof, that he carried out any work duties for DraftKings from California. Additionally, as detailed below, it is probable that Hermalyn reached out to two Massachusetts-based DraftKings employees, Metz and Larracey, during his initial days at Fanatics. [17]
On the other hand, California has a minimal connection to the lawsuit. Hermalyn established residency there just days before resigning from DraftKings and one week before the litigation began.[18] The likely breach of his contracts with DraftKings took place partly in California and partly in Massachusetts. In regard to these facts, they do not give California a greater interest in this case compared to Massachusetts.[19]
Additionally, the Federal Trade Commission recently proposed a rule in January of 2023 that if enacted would ban the use of any non-compete agreement throughout the entire nation.[20] If this rule was to be enacted, it would greatly strengthen Hermalyn’s position and eliminate any of DraftKings’s legal claims against Hermalyn based on the non-compete clause.[21]
[1] Mike Reynolds, American Gaming Association: Legal sports betting hits record revenue in 2023, S&P Global (Feb. 21, 2024) https://www.spglobal.com/ [https://perma.cc/9HYL-XA42].
[2] Tyler Maher & Henry Palattella, Sports Betting Statistics: Legality By State In 2024, Forbes (July 20, 2024), https://www.forbes.com/ [https://perma.cc/KH3S-4BD7].
[3] Tyler Maher & Brian Pempus, Best Sports Betting Apps In The U.S. – September 2024, Forbes (Sep. 4, 2024) https://www.forbes.com/ [https://perma.cc/N9ML-59WW].
[4] Cat Johns & Dawn Mertineit, DraftKings Dispute with Former Executive Presents Battle Over Choice of Law for Non-Compete Agreements, Seyfarth (Aug. 12, 2024), https://www.tradesecretslaw.com/ [https://perma.cc/R2UJ-HFQH].
[5] DraftKings Inc. v. Hermalyn, 1:24-cv-10299-JEK, (D. Mass. 2024)
[6]Davis, supra note 5.
[7] Id.
[8] Id.
[9] Id.
[10] Id.
[11] Hermalyn, 1:24-cv-10299-JEK.
[12] Richard Stim, Choice of Law Provisions in Contracts, Nolo
https://www.nolo.com/ [https://perma.cc/CT2D-MGVE].
[13]Hermalyn, 1:24-cv-10299-JEK.
[14] Oxford Global Resources, LLC v. Hernandez, 480 Mass. 462, 467 (2018), (quoting Bushkin Assocs., Inc. v. Raytheon Co., 393 Mass. 622, 632 (1985), and Restatement (Second) of Conflict of Laws § 188(2) (1971)).
[15] Hermalyn, 1:24-cv-10299-JEK.
[16] Id.
[17] Id.
[18] Id.
[19] Id.
[20] Davis, supra note 5.
[21] Id.
