Motion for TRO Denied as New York State DFS Legal Battle Looms

A rapidly accelerating legal collision between daily fantasy sports (DFS) giants DraftKings and FanDuel and New York State authorities looms following a busy Monday which saw DraftKings’ and FanDuel’s motion for a temporary restraining order against New York Attorney General Eric T. Schneiderman declined, pending an initial hearing in the matter scheduled for next Wednesday.

newyorkpostcardNew York Supreme Court Justice Manuel Mendez denied a motion for a TRO by the two companies on Monday, the latest development in a fast sequence of events regarding the legality of DFS in America’s second most-populous state.

A DraftKings spokesman sent out a media alert this morning following the filing of the motion for the TRO, stating at that time, “Today we filed a motion in the Supreme Court of the State of New York, seeking an order temporarily restraining the New York Attorney General from taking any action to enforce the cease and desist letter sent to DraftKings last week. We also requested an expedited hearing schedule to resolve this matter as quickly as possible. We believe this TRO is necessary and warranted to protect DraftKings’ business while we pursue our legal action to prevent the New York Attorney General from denying New Yorkers the right to continue playing the daily fantasy sports games they love.”

Except the TRO wasn’t issued, and it’s not exactly clear what will happen in the brief interim between today’s denial of the two firms’ joint motion and the hearing now tentatively scheduled for next Wednesday, barring further developments from Schneiderman’s office.  For instance, DraftKings and Schneiderman’s office disagreed on exactly what was stated before Judge Mendez.

According to a follow-up from DraftKings, distributed late this afternoon, “The Court granted our order setting this case for an emergency hearing next Wednesday. The AG assured the Court he will take no action against DraftKings or its business partners before then. On that record, and because there will be an emergency hearing next week, the Court determined that no TRO was necessary. We are confident in our legal position, and look forward to our day in court next week. As a result, we intend to continue operating in New York.”

Except that the granting of the order was done in regards to the request for the expedited hearing, and not in regards to the motion for the TRO.  Further clouding the day’s developments was a quote given from a New York AG office spokesman to CNBC reporter Jessica Golden, referring to the DraftKings statement that no interim action would occur and denying that happened.  “That did NOT occur in court,” the unidentified NY AG spokesman told Golden.

One reason the TRO may not have been issued is that for the time being, it was likely moot: Last week’s C&D isn’t binding by itself, and would require a follow-up action from Schneiderman’s office.  Indeed, the denial from Schneiderman’s AG office leaves open the possibility that New York’s AG may file an injunction against the two leading DFS sites as soon as tomorrow… or, then again, maybe not.  DraftKings and FanDuel continues to operate in New York State in open defiance of the original cease-and-desist order issued by Schneiderman last Tuesday.

There are some subtle difference between the two companies’ public stances, however.  FanDuel hasn’t been quite as militant as DraftKings in its public statements, and at least temporarily, the site as of Friday stopped processing withdrawals and deposits for its New York-based customers, unleashing a volley of consumer-based complaints.  A FanDuel statement on Monday accused Schneiderman’s office of interfering with the site’s third-party payment processors, pressuring them to stop providing financial connections to New York-based players.  A spokesman for Schneiderman’s office denied that claim as well, and by this evening, most stories had gone with an alternate explanation for the FanDuel processing delay, relating to a supposed new payment processor and its new ID-verification protocol.

The two companies, meanwhile, have also filed their own lawsuits against Schneiderman and his New York Attorney General’s office, alleging that his actions designed to curtail DFS activity in New York state are themselves illegal and unconstitutional.

An excerpt from DraftKings’ petition against Schneiderman illustrates that this battle isn’t going to end quickly or easily.  Per DraftKings’ filing:

… The Attorney General, misreading New York’s gambling laws, is attempting to bully DraftKings—a celebrated company offering Daily Fantasy Sports (“DFS”) to millions of Americans—and its vendors into immediately shutting down DraftKings’ New York operations before it even has a chance to defend itself. Using strong-arm tactics and defying the rule of law, the Attorney General earlier this week sent a self-styled “cease-and-desist” letter to DraftKings, accusing it of engaging in prohibited “gambling” activities and supposedly giving DraftKings five business days to “cease and desist” before any enforcement proceeding would be filed. But the Attorney General’s staff then turned around and contacted DraftKings’ business partners, threatening to take action against them unless they immediately ceased performing services for DraftKings in New York. …

The filing then went on to claim that this was part of the reason for the filing of the motion for the TRO, even though Judge Mendez declined to go along with that part of the argument.  Nonetheless, a turbulent autumn for the two DFS giants continues, with a major legal showdown set for just a few days ahead.

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