Olson v. Major League Baseball

Background

Five named plaintiffs brought a proposed class action against Major League Baseball (MLB), MLB Advanced Media, L.P., the Houston Astros, LLC, and the Boston Red Sox Baseball Club, L.P. The plaintiffs had participated in DraftKings daily fantasy baseball contests between 2017 and 2019. They alleged that electronic sign stealing by the Astros and Red Sox improved those teams’ batting performance and compromised the player statistics used in the contests.

The plaintiffs claimed that the defendants knew about the sign stealing, failed to stop it, and made statements or omissions that led them and other DraftKings participants to believe the contests were fair and based on legitimate player performance. The amended complaint asserted common-law fraud, negligence, unjust enrichment, consumer-protection claims under the laws of the plaintiffs’ states and other states, Texas consumer-protection claims against the Astros, and Massachusetts consumer-protection claims against the Red Sox. All defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint adequately states a legal claim.

Fraud claims

The court held that the plaintiffs had plausibly identified a few potentially false statements, including denials by Astros officials, MLB Commissioner Robert Manfred’s statement that he had conducted a “thorough investigation,” and the Astros’ and Red Sox’s agreement to follow MLB rules. But the court concluded that these statements could not support the fraud claims because the plaintiffs did not plead that they saw, read, or otherwise noticed the statements. The complaint also did not identify specific statements representing that fantasy baseball contests themselves were protected from MLB rules violations.

The court rejected the fraud-by-omission theory because the plaintiffs did not identify a relationship or transaction between themselves and the defendants that created a duty to disclose the sign stealing. The court also rejected the theory that MLB and DraftKings formed a joint venture, finding that the complaint did not allege the required agreement to associate as joint venturers or an agreement to share profits and losses.

Negligence claims

The negligence claims failed for similar reasons. The plaintiffs did not adequately allege that the defendants owed them a duty to disclose the sign stealing or a duty to take additional steps to prevent player misconduct. The negligent-misrepresentation theory also failed because the plaintiffs did not adequately allege reliance on defendants’ statements.

Consumer-protection claims

The court held that the consumer-protection claims were subject to the heightened pleading requirements for fraud because they relied on the same alleged misrepresentations. The plaintiffs did not specifically allege that they saw or heard those statements or that the statements caused them to enter contests they otherwise would not have entered.

The court also found that the alleged connection between the defendants and the plaintiffs’ purchases of DraftKings contest entries was too weak. The plaintiffs did not allege a business relationship with the defendants, that the defendants created the contests, that the defendants misrepresented the contests themselves, or that the defendants substantially participated in the transactions. Allowing DraftKings to use MLB marks and stadiums to promote contests was not enough on the allegations presented.

Unjust enrichment claims

The unjust-enrichment claims failed because the plaintiffs did not plausibly allege that the defendants were enriched at the plaintiffs’ expense. The complaint did not explain how any share of DraftKings fees came at the plaintiffs’ expense or how those fees were shared with the defendants. It also did not explain how an increase in the value of defendants’ investment in DraftKings came at the plaintiffs’ expense. The alleged benefits from increased fan involvement and related baseball commerce were too attenuated, and the plaintiffs did not allege that they personally engaged in that additional commerce.

Disposition and classification

The court stated that some deficiencies might conceivably have been cured by another amendment, but that most could not. It therefore granted defendants’ motions to dismiss in their entirety and dismissed the plaintiffs’ amended complaint with prejudice. The clerk was directed to enter judgment. Because the order resolved the case under Rule 12(b)(6), without reaching the underlying legal question through an adversarial merits determination, this is a procedural order.