FanDuel Private Equity Backers May Have to Disclose Docs as Part of Founders’ Lawsuit

FanDuel co-founder Nigel Eccles and his more than 100 co-plaintiffs in a lawsuit against the private equity shops that sold the gaming company in 2018 scored a small legal win last week when a New York special master ordered that select communications between FanDuel executives, members of the board of directors and their legal counsel should be disclosed.

In a 33-page discovery order, special master Alan Scheinkman said that KKR and Shamrock Capital — the private equity firms that sold FanDuel to Paddy Power Betfair in 2018 — must disclose select communications that would normally be protected by legal privilege for what would be a confidential review.

The order makes clear that the previously protected communications the defendants are to submit for evaluation will only pertain to FanDuel’s valuation prior to the sale to Paddy Power Betfair, the private equity companies’ drag-along rights and the proceeds that were expected to flow to Eccles and other co-founders.

When Paddy Power Betfair, which went on to become Flutter Entertainment (NYSE: FLUT), acquired FanDuel, the deal was valued at roughly $465.5 million in equity, or $559 million when accounting for debt and preferred issues. KKR and Shamrock had a “liquidation preference” for the first $559 million of any sale, implying that was the value of their drag-along rights.

Important Legal Details

The details of Scheinkman’s order are important and include the notion that the jilted FanDuel shareholders’ application of Scots law has merit in this case. Eccles founded FanDuel with his wife and friends in Scotland in 2009. He resigned as chief executive officer of the company in 2017.

The disclosure order also makes clear that it is not stating that the defendants ran afoul of their fiduciary obligations as set forth under Scots law. Likewise, Scheinkman made clear that the communications that are not subject to confidential review are not subject to legal protection simply because the defendants expected litigation.

He did, however, rule that certain documents that were created specifically in anticipation of a lawsuit retain protection privileges and that he can decide the extent to which those documents can be viewed, if at all, by plaintiffs’ attorneys.

As for the communications that are subject to the order, the two sides must agree on a review timeline in advance of the New York Supreme Court’s Dec. 18 discovery deadline.

Plaintiffs Making Small Strides

While KKR and Shamrock aren’t going to roll over and readily surrender, it’s worth noting that the plaintiffs are making some small, but positive steps. Scheinkman’s order arrived three months after the New York Supreme Court refused the defendants’ request to have the case dismissed.

Eccles characterized the July ruling as an “interim but important step.” As for the special master’s disclosure order, it is legally binding, but it is not a commentary on the broader merits of the defendants’ and plaintiffs’ standing in the case.