Michael Hermalyn lost an appeal in his back-and-forth legal battle with DraftKings, his former employer.
A U.S. Court of Appeals rejected Hermalyn’s bid to apply California law, rather than Massachusetts law, regarding his DraftKings’ non-compete clause, according to Reuters. Hermalyn was a senior executive at DraftKings before leaving to take an identical position at Fanatics, violating his non-compete clause.
The legal battle between Hermalyn and his former employer has been especially contentious, given the dynamics of the lucrative U.S. sports betting industry. DraftKings is one of the market leaders, while Fanatics is an up-and-comer, looking to gain market share any where it can. It may be one reason why Hermalyn’s DraftKings non-compete clause is getting more scrutiny than it might in a different industry or a different locale.
Sometimes non-compete clauses do matter …
The use of non-compete clauses has skyrocketed over the past decade. Rarely, however, do they hold up in court. But in some cases – and in some states – former employees can be temporarily barred from working within their industry or from work that could compromise their former employer.
The state of California, where Hermalyn now lives, overturns non-complete clauses in most cases. Massachusetts, where DraftKings is headquartered, often upholds non-compete clauses in cases involving upper-level management.
Thursday’s decision, rendered by a three-judge panel, affirmed that Massachusetts law should govern in Hermalyn’s case. The Boston-based 1st U.S. Circuit Court of Appeals opined, “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.”
Neither Fanatics, Hermalyn nor DraftKings offered comments immediately following the decision.
The legal timeline
Hermalyn left DraftKings for Fanatics just before this year’s Super Bowl, triggering the dispute. In February, Hermalyn filed a lawsuit in California, attempting to void his non-compete clause. That clause would prevent him from working for a DraftKings competitor. DraftKings countersued, alleging the former senior executive stole confidential client information and business plans before taking a similar executive position at Fanatics.
Days later, a Boston-based federal judged temporarily barred Hermalyn from using DraftKings’ proprietary data and soliciting its clients or employees. At that time, U.S. District Judge Julia Kobick did not outright ban Hermalyn from working for Fanatics.
In March, DraftKings filed a memorandum of law, supporting its claims. It offered supporting evidence that Hermalyn downloaded DraftKings’ confidential information while at the L.A. home of Fanatics CEO Michael Rubin when Hermalyn was still a DraftKings employee. Soon after, Hermalyn’s legal team filed a legal brief accusing DraftKings of making “over-the-top” accusations and attempting to smear the reputation of their former employee.
In April, Hermalyn denied in court he tried to poach DraftKings customers or employees. His testimony, however, was followed by two DraftKings’ employees who claimed Hermalyn offered them multi-million-dollar contracts to try to get them leave DraftKings and join him at Fanatics.
In May, DraftKings won a preliminary injunction, preventing Hermalyn from accessing VIP clients at his job at Fanatics. U.S. District Judge Kobick determined the evidence suggested Hermalyn likely violated his non-compete agreement with DraftKings and obtained confidential information before leaving for Fanatics.?
This latest appeal might not mark the end of Hermalyn’s legal issues. But the battle over the non-compete clause may soon be moot. It’s already been seven months since his DraftKings’ departure and the clock will soon run out on the non-compete period. And whether DraftKings continues to pursue the breach of its confidential information may be dictated more by the state of the industry than the facts of the case.
