Clifford v. Major League Baseball

Background

Five named plaintiffs—Kristopher R. Olson, Christopher Lopez, Warren Barber, Christopher Clifford, and Erik Liptak—brought a proposed class action against Major League Baseball, MLB Advanced Media, L.P., the Houston Astros, LLC, and the Boston Red Sox Baseball Club, L.P. The plaintiffs participated in DraftKings daily fantasy baseball contests between 2017 and 2019.

The amended complaint alleged that the Astros and Red Sox, and possibly other teams, used electronic devices to steal opposing teams’ signs in violation of Major League Baseball rules. It further alleged that the defendants knew about the conduct, failed to stop it to protect their financial interests and investment in DraftKings, and made statements or omissions that concealed the problem. The plaintiffs asserted common-law fraud, negligence, and unjust-enrichment claims against all defendants. They also asserted state consumer-protection claims against various defendants, including claims under the laws of all 50 states against the Major League Baseball defendants, Texas law claims against the Astros, and Massachusetts law claims against the Red Sox.

All defendants moved to dismiss the amended complaint under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint adequately states a legal claim. Fraud-based claims also had to satisfy Rule 9(b), which requires the circumstances of alleged fraud to be stated with particularity.

Fraud Claims

The court held that the plaintiffs plausibly identified a few potentially false statements, including denials by Astros officials of sign stealing, Major League Baseball Commissioner Robert Manfred’s statement that he had conducted a “thorough investigation,” and representations by the Astros and Red Sox that they would follow Major League Baseball rules. But the court held that these statements could not support the fraud claims because the plaintiffs did not allege with the required specificity that they saw, read, or otherwise noticed the statements.

The court also rejected the plaintiffs’ theory that they relied generally on representations that fantasy baseball was a game of skill and that Major League Baseball would protect the integrity of the sport. The court found that the complaint did not identify actual statements making those specific representations. The court separately held that the omission theory failed because the plaintiffs did not identify a relationship giving defendants a duty to disclose the sign-stealing schemes. The court concluded that the plaintiffs had not alleged a business transaction or comparable relationship with defendants, and that their proposed joint-venture theory involving DraftKings was not adequately pleaded.

Negligence Claims

The court held that the negligence claims failed for similar reasons. The plaintiffs did not adequately allege that defendants owed them a duty to disclose the sign stealing, a duty to prevent player misconduct, or a duty arising from defendants’ alleged representations. The court also held that negligent-misrepresentation claims required justifiable reliance, which the plaintiffs had not shown.

Consumer-Protection Claims

The court dismissed the state consumer-protection claims for two independent reasons. First, because the claims were based on alleged deception, they were subject to Rule 9(b), and the plaintiffs had not pleaded specifically that they saw or heard the alleged misrepresentations or that those statements caused them to enter contests they otherwise would not have entered.

Second, the court held that the alleged connection between the defendants and the plaintiffs’ transactions with DraftKings was too indirect. The plaintiffs did not allege a business relationship with defendants, that defendants created the fantasy contests, that defendants misrepresented the contests themselves, or that defendants substantially participated in the transactions. Allowing DraftKings to use defendants’ marks and stadiums for advertising, along with generalized allegations that defendants promoted the contests, was not enough.

Unjust-Enrichment Claims

The court held that the plaintiffs did not plausibly allege that defendants were enriched at the plaintiffs’ expense. The plaintiffs did not explain how alleged shares of DraftKings fees came at their expense or how the fees were shared. They also did not explain how any increase in defendants’ investment value in DraftKings came at their expense. Finally, they did not allege that they personally engaged in the increased baseball-related commerce that allegedly benefited defendants.

Disposition

The court concluded that the alleged connection between the plaintiffs’ harm and defendants’ conduct was too indirect to support any claim for relief. It stated that defendants’ motions to dismiss were granted in their entirety and that the plaintiffs’ amended complaint was dismissed with prejudice. The clerk was directed to enter judgment.