Olson v. Major League Baseball

Background

The plaintiffs—Kristopher R. Olson, Christopher Lopez, Warren Barber, Christopher Clifford, and Erik Liptak—brought a proposed class action individually and on behalf of others similarly situated. The opinion describes them as people who participated in daily fantasy baseball contests hosted by DraftKings between 2017 and 2019. They sued Major League Baseball, MLB Advanced Media, L.P., the Houston Astros, LLC, and the Boston Red Sox Baseball Club, L.P.

The first amended complaint asserted claims involving fraud, negligence, unjust enrichment, and violations of consumer-protection laws. The claims were based on alleged misrepresentations connected to what the opinion calls a sign-stealing scandal. On April 3, 2020, the court dismissed all claims for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). The court dismissed the complaint with prejudice because it concluded that some defects could not be cured by amendment. The Clerk entered judgment against the plaintiffs on April 7, 2020.

The plaintiffs then sought reconsideration only of the decision to dismiss with prejudice. They asked the court to set aside the April 7 judgment and allow them to file a proposed amended complaint. They argued that the proposed complaint used additional allegations based on materials obtained from the defendants during discovery.

Legal standard

The court explained that reconsideration is generally available only when the moving party identifies controlling decisions or information that the court overlooked and that could reasonably change the result. Because the motion also sought permission to amend the complaint, the court considered the rule that leave to amend should generally be freely given when justice requires. But amendment may be denied when it would be futile—that is, when the proposed amendment still would not state a viable claim.

Analysis

The plaintiffs identified two alleged new misrepresentations. First, they relied on language in DraftKings’s Terms of Use describing contests as contests of skill. The court concluded that, on its face, the language referred to the skill and knowledge of the fantasy-sports participants, not to a representation by the defendants about the nature of fantasy baseball contests. The court also found that the plaintiffs had not plausibly alleged that the language was included because Major League Baseball insisted on it. The MLB-DraftKings agreement instead suggested that the Terms of Use applied generally to DraftKings contests and that MLB’s advance approval was not required for changes to those terms.

Second, the plaintiffs alleged that MLB Commissioner Manfred made a false statement in a September 15, 2017 press release about an investigation into possible misconduct by the New York Yankees. The court assumed for purposes of analysis that the press release could have misrepresented the extent of the Yankees’ involvement in sign-stealing. It nevertheless concluded that the alleged statement concerned the integrity of major-league baseball, not fantasy baseball. It therefore did not supply the misrepresentation about fantasy baseball that the court had previously found necessary to support the plaintiffs’ reliance theories.

The plaintiffs also argued that the proposed complaint showed a sufficient connection among the defendants, the plaintiffs, and the fantasy baseball transactions. They relied mainly on the MLB-DraftKings agreement and alleged that the defendants created the contests, controlled their terms, marketed them, participated in their sale, used MLB platforms, and profited from them. The court found that the agreement did not show that MLB created the contests. Instead, it stated that DraftKings was solely responsible for developing and operating them. The agreement showed MLB’s licensing, branding, advertising, approval, marketing, and other involvement, but the court concluded that these additional details did not establish the relationship or transaction needed for the fraud-by-omission and consumer-protection claims.

For the fraud-by-omission claim, the court concluded that the proposed complaint still did not plausibly allege a relationship that would create a duty to disclose. It did not plausibly allege a transaction between the plaintiffs and the defendants, that MLB DFS contests were the defendants’ product, or that the defendants made a specific representation about those contests that could create such a duty. For the consumer-protection claims, the court likewise concluded that the proposed complaint did not show a sufficient connection between the defendants and the transactions that allegedly harmed the plaintiffs. The court found that advertising and approving the form of the contests did not change its earlier conclusion.

Finally, the court rejected the proposed amended unjust-enrichment claims. The proposed complaint alleged that the defendants received fees attributable to MLB fantasy contests, but the agreement and other materials showed licensing fees, advertising revenue, and an equity stake in DraftKings. The court concluded that these allegations did not show that the defendants directly received any part of the plaintiffs’ contest entry fees or were enriched at the plaintiffs’ expense.

The court did not reach the plaintiffs’ argument that the proposed complaint corrected pleading deficiencies under Rule 9(b), because the earlier dismissal had not depended on Rule 9(b). The court also noted that a separate motion concerning whether to unseal a letter had no bearing on this decision.

Disposition

The court concluded that the proposed amended complaint did not remedy the defects supporting the earlier dismissal with prejudice. It therefore denied the motion for reconsideration and for leave to amend. Judge Jed S. Rakoff signed the memorandum order on June 5, 2020.