DraftKings Settles ‘Corporate Espionage’ Lawsuit Vs. Former Exec

DraftKings has settled a legal spat with its former head of VIP, Michael Hermalyn, whom the operator accused of “corporate espionage” after the executive jumped ship to its rival, Fanatics.

The terms of the settlement have not been disclosed, but it comes three months after the 1st U.S. Circuit Court of Appeals in Boston rejected Hermalyn’s bid to overturn a lower court injunction that severely restricted the type of work he could do at Fanatics.

The lower court determined last April that a noncompete clause Hermalyn signed while at DraftKings was enforceable.

‘Stolen’ Super Bowl Plan

Boston-based DraftKings sued Hermalyn in Massachusetts in February 2004 claiming he plotted to join Fanatics for over a year before leaving. The lawsuit alleged he took with him confidential information about DraftKings’ VIP clients, along with its Super Bowl business plan.

Fanatics is best known as a platform that sells licensed sports merchandise, trading cards, and collectibles, but in late 2004, it launched a sportsbook. At some point, the company invited Hermalyn to join as president of its VIP program, although when this actually happened is disputed.

He also denied sharing any documents with Fanatics or having access to any DraftKings files after his resignation.

Hermalyn further argued that California’s Business & Professions Code prohibits an employer from enforcing a noncompete agreement regardless of whether the contract was signed outside of California. While Fanatics is based in Jacksonville, Fla., Hermalyn was hired to head up its Los Angeles office.

California Suit

As such, he filed his own lawsuit in California to challenge the noncompete agreement. The judge in that case determined Hermalyn would likely prevail under California law, but declined to act because he said there would have to be exceptional circumstances to interfere with a court ruling in another state.

Hermalyn is enjoined from providing services to Fanatics that relate to any aspect of DraftKings business for a year from the date he started his new job – a period that is due to end on February 1, 2025.

“All litigation between them has been settled and dismissed on confidential terms, and Mr. Hermalyn will abide by his contractual commitments to DraftKings,” Russell Beck, a lawyer for Hermalyn, said in a statement to Reuters.