In a bombshell legal filing, DraftKings (DK) has accused Michael Hermalyn, its former head of VIP programming, of a yearlong plot to steal corporate secrets. DraftKings alleges Hermalyn then used that intelligence to secure himself a near-identical VIP-facing role at Fanatics Sportsbook.
Further, the 49-page civil complaint filed on Monday in Massachusetts US District Court claims Hermalyn intended to damage DraftKings’ VIP operation ahead of the upcoming Super Bowl.
DraftKings says Hermalyn was on the receiving end of disciplinary action in January. Its court filing paints his alleged plan as being driven, in part, by a desire to retaliate against the company.
Front Office Sports broke the news early Monday night.
DraftKings Alleges Hollywood-Style Deception
The case DraftKings lays out in its brief could double as the plot of a spy novel or the script of a salacious Hollywood film.
According to the filing, Hermalyn, violating his contract, intended to take stolen corporate information and DraftKings employees along when he departed for Fanatics last week.
DraftKings argues an injunction is needed to prevent further harm.
Injunctive relief is urgently necessary to prevent Hermalyn from using and disclosing the extraordinarily sensitive information he downloaded and, on information and belief, stole, to harm DraftKings any more than he already has.
Incredibly, DraftKings suit claims that on Jan. 29, Hermalyn told coworkers a friend had died, and he’d be “dealing with that” for two days. Instead, DraftKings says geolocation data showed Hermalyn made the cross-country trip to California, where he allegedly met with Fanatics.
DK also claims he established California residency during the same short trip.
Suit Details Alleged Yearlong Deception
The brief’s introduction describes the defendant’s alleged crimes in broad strokes:
Hermalyn, a senior executive compensated millions of dollars by DraftKings to oversee VIP customer acquisition and retention, 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.
According to the filing, Hermalyn’s scheme started as far back as the 2023 Super Bowl, when he met “clandestinely” with Fanatics’ leadership about employment.
DK alleges he “took further disloyal steps” that summer while feigning he was “getting out of the industry.”
Instead, DraftKings claims he encouraged employees to meet with Fanatics’ CEO about shifting allegiances. At the same time, DraftKings says he urged them to offer his team (including Hermalyn) large retention payments worth “millions of dollars.”
Hermalyn took the final steps of his plan last week, DK’s lawsuit alleges:
Hermalyn’s disloyal scheme culminated late last week on the eve of this year’s Super Bowl. While he falsely claimed to be mourning the loss of a friend from Pennsylvania, Hermalyn instead secretly traveled to Fanatics offices in Los Angeles, negotiated an employment agreement with Fanatics, downloaded DraftKings’ confidential business plans for the Super Bowl while sitting in Fanatics’ offices, and fraudulently attempted to establish California residency during his 48-hour visit so he could resign from DraftKings and try to invalidate his non-compete agreements in California state court only a few days later.
California Complaint Seeks to Quash Noncompete
A piece published Monday in the Los Angeles Daily Journal confirms Hermalyn’s effort to challenge DraftKings’ noncompete in state court.
That complaint, filed Thursday in Los Angeles Country Superior Court shortly after Hermalyn handed DK his resignation, claims DK’s covenants are “overly restrictive.” It also argues they’re unenforceable in California, where Hermalyn claims to now live and work.
According to Hermalyn’s complaint, he relocated to Los Angeles during his January visit, securing an apartment and a driver’s license, buying a car, and registering to vote.
These sweeping provisions purport to prohibit Mr. Hermalyn from being employed in the betting and gaming space in which he has worked for 16 years, from engaging in any work pertaining to fantasy sports, betting and gaming, and various other industries and from communicating with his former clients and co-workers.
DraftKings disagrees, citing a forum selection clause in Hermalyn’s contract establishing Massachusetts as the venue for post-employment litigation.
The brief also notes that Hermalyn repeatedly agreed to the non-competition restrictions “no less than 12 times” for “millions of dollars in DraftKings equity.”
DK Investigation Alleges Further Misconduct
Further, DraftKings’ filing accuses Harmalyn of exacting revenge after being held accountable for workplace misconduct.
On January 26, 2024, Hermalyn was informed that DraftKings was taking immediate disciplinary action towards him, including by reducing his compensation and title, while DraftKings continued to evaluate his conduct. After this meeting, Hermalyn expressed that his desire was to move forward with DraftKings and remain employed. However, DraftKings’ disciplinary action and ongoing observation of his conduct, on information and belief, motivated Hermalyn to finally carry out his scheme
The investigation, the documents detail, was initially prompted by “a female employee’s allegations about inappropriate workplace treatment.”
However, DK also found “numerous additional employees raised allegations of improper conduct including theft of company funds, inappropriate behavior towards women and bullying.”
DraftKings leveled eight counts against Hermalyn, including three counts of Breach of Conduct and two Misappropriation of Trade Secrets. Single counts of Misappropriation of Confidential Business Information, Breach of Duty of Loyalty, and Conversion round out the charges.
As a remedy, the company has asked for a temporary restraining order to prevent Hermalyn from providing any services to Fanatics or its subsidiaries.
Additionally, the lawsuit seeks to block Hermalyn from directly or indirectly soliciting any current or prospective DraftKings clients, employees, vendors, and partners. It also aims to restrain and enjoin Hermalyn from using or disclosing any of its confidential information and return the stolen documents.
Finally, the lawsuit requests” preliminary and permanent injunctive relief,” restitution of “vested equity,” and a laundry list of damages:
- actual and compensatory damages
- costs, expenses, and reasonable attorneys’ fee
- exemplary, treble, and (or) punitive damages
- recoupment and (or) disgorgement of any equity grants
- other compensation paid to Hermalyn during his period of disloyalty
- further and other relief as the court deems proper.
Fanatics Declares DK Suit “Sour Grapes”
On Tuesday, a Fanatics spokesperson told Legal Sports Report (LSR) that DraftKings is tossing around allegations over losing an employee. LSR, like Bonus, is owned by Catena Media.
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.
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