DraftKings Claims ‘Double Agent’ Shared Docs at Fanatics CEO Home

The legal fallout of former DraftKings executive Michael Hermalyn’s move to rival Fanatics expanded last Friday when DraftKings argued in a court filing that Hermalyn downloaded “numerous” sensitive DraftKings documents—including while he was staying in the home of Fanatics CEO Michael Rubin when he was still a DraftKings employee—and then “attempted to cover his tracks by destroying evidence.”

The accusations are detailed in DraftKings’ motion for a preliminary injunction before a Massachusetts federal court. The injunction, if granted by U.S. District Judge Julia Kobick, would bar Hermalyn from providing services to Fanatics until the court determines the merits of the case—a period that would last months or longer.

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DraftKings sued Hermalyn in February, accusing him of conspiring with Rubin and other company leaders. Derided by DraftKings as a “double agent,” Hermalyn allegedly misappropriated sensitive materials as he and Fanatics tried to finesse his employment move without triggering a noncompete clause governed by Massachusetts law.

On Feb. 8, Kobick granted DraftKings a temporary restraining order, though a less sweeping one than the company sought. The TRO stipulated Hermalyn could not solicit DraftKings employees or customers, use any confidential company information or delete, move or alter any relevant computer files. But the TRO didn’t prevent Hermalyn from working at Fanatics.

Hermalyn unequivocally denies any wrongdoing. He flatly rejects DraftKings’ accusations, dismissing them as “entirely fabricated” and grounded in lies. Hermalyn and Fanatics have separately sued DraftKings in California, claiming the noncompete clause violates California law. While Massachusetts law permits noncompete clauses—within defined limits, including they cannot extend beyond one year—California law prohibits them.

The lawsuit strikes at the heart of a critical piece of any sportsbook’s business—its most valuable clients. Hermalyn oversaw VIP relations at DraftKings, and he accepted a similar role at Fanatics. While average bettors wager much smaller sums and typically bounce around between books chasing promos and deposit matches, a sportsbook’s VIPs are significantly more valuable, and if handled properly, significantly more loyal.

In its latest filing, DraftKings says it has obtained new evidence and testimony over the last month revealing a multifaceted plot to misappropriate intellectual property and trade secrets and then cover the tracks.

Among DraftKings’ allegations is the explosive assertion Hermalyn engaged in data heists while staying in Rubin’s California home earlier this year. It was there, DraftKings contends, where “forensic evidence proves” Hermalyn downloaded “dozens” of DraftKings documents from a non-DraftKings device. Hermalyn allegedly also used Rubin’s house as a base to solicit other DraftKings executives with multimillion dollar offers to join him at Fanatics.

Hermalyn is also accused of trying to cover up his steps. DraftKings says he moved files from his DraftKings laptop to an iPhone using a combination of AirDrop, Google and file-transfer platforms. As DraftKings tells it, Hermalyn then deleted his web browsing history. Some of the files contained business plans, marketing strategies, customer and partner lists and details of employees’ compensation packages.

Preliminary injunctions are difficult to obtain and are considered extraordinary measures in law. DraftKings must establish it would suffer irreparable harm, meaning a harm that money damages can’t later remedy, unless an injunction is granted. DraftKings asserts that Hermalyn’s alleged use of confidential information will cause “immense” and irreparable harm.

Attorneys for Hermalyn will have the chance to offer rebuttals in opposing the preliminary injunction. Expect them to reject the accusations, continue to insist Hermalyn and Fanatics acted lawfully and depict DraftKings as unreasonably attempting to deny the movement of a worker from one company to another. Hermalyn will likely also draw distinctions between DraftKings’ retellings of events and conversations versus what Hermalyn will say actually happened and was really said.

(With assistance from Eben Novy-Williams.)

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