New York Judge Grants Injunction Against FanDuel, DraftKings

Daily fantasy sports sites continue navigating choppy legal waters today after a ruling by New York Supreme Court Judge Manuel J. Mendez that granted an injunction sought by New York State Attorney General Eric T. Schneiderman against the two largest DFS sites, FanDuel and DraftKings, to prevent the from operating in New York State. (Update: Late on Friday, a NY appellate court issued a temporary stay preventing Mendez’s order against FanDuel and DraftKings from taking effect.)

Seal of New YorkToday’s ruling means that the two companies will be unable to provide DFS services to New York residents, at least until expected appeals and probable motions to stay the injunctions are heard.  DraftKings had continued serving New York players following last months filing of an injunction against the two sites by Schneiderman, though FanDuel had already temporarily suspended its New York services.

DraftKings’ lead counsel and the Chairman of Boies, Schiller & Flexner LLP , David Boies, immediately filed an appeal following the issuing of the today’s ruling, followed within hours by FanDuel.  Boies also issued a brief press statement on the ruling, offering that ““We are disappointed with the Court’s decision, and will immediately file an emergency notice of appeal in order to preserve the status quo.  Daily Fantasy Sports contests have been played legally by New Yorkers for the past seven years and we believe this status quo should be maintained while the litigation plays out.”

In issuing his ruling, Judge Mendez wrote, “Upon a reading of the foregoing papers it is ordered that the motion by Eric T. Schneiderman, in his official capacity as attorney general of the state of New York, for an order seeking injunctive relief, enjoining and restraining [DraftKings / FanDuel] from doing business in the state of New York, and from accepting entry fees, wagers or bets from New York consumers in regards to any competition, game or contest run on defendant’s website is granted.”

Added Mendez, in an excerpt leaning on New York’s widely-encompassing “contest of chance” laws:

“The NYAG has established the likelihood of success warranting injunctive relief under the authority provided  in Executive Law §63[12], to avoid fraudulent or illegal acts and violations of GBL [New York General Business Law] §§349 and 350.  The NYAG has a greater likelihood on the success of the merits under the New York State Constitution Article I, §9, and the definitions of gambling and “contest of chance” as currently stated in Penal Law §225.00 [1],[2].  The NYAG has also established that both Fanduel Inc. and Draftkings Inc., as out of state corporations, can be enjoined — pursuant to BCL §1303 — from their activities in the State of New York.  The NYAG is not required to show irreparable harm under Executive Law §63[12], it is implied in the need to prevent the effects of fraudulent and illegal conduct on the general public [case citation].  The balancing of the equities are in favor of the NYAG and the State of New York due to their interest in protecting the public, particularly those with gambling addictions.  Fanduel, Inc., and Draftkings, Inc., are only enjoined and restrained in the State of New York, DFS is permitted in other states, and the protection of the general public outweighs any potential loss of business.”

Mendez continued by stating that, “Fanduel Inc. and Draftkings Inc. have not established entitlement to a preliminary injunction,” but noted, in proper legal fashion, that “a granting or denial of a preliminary injunction does not constitute a determination of the ultimate issues… .”

Mendez also dismissed earlier motions made by DraftKings and FanDuel for a preliminary restraining order, partly on grounds of being unripe motions at the time they were filed.  FanDuel is expected to mirror the filing of today’s immediate appeal of the ruling by DraftKings in very short order.

This morning’s ruling by Mendez comes only two weeks after legal representatives of the state and the two large DFS companies participated in a hearing before Mendez, who could have made an immediate ruling at that time but chose to take the two weeks to set out the basis for his granting of the motion for an injunction.

Today’s ruling is important beyond the New York market for several reasons.  First, New York’s gambling laws are similar to those in several other US states, who now may take a renewed look at DFS operations.  To date, only six or so of the US’s 50 states have banned or leaned on existing gambling laws to bar DFS participation by their residents.

However, the ruling by today will also provide new energy to a consumer-brought lawsuit in Massachusetts.  That lawsuit is one of several dozen class-action complaints filed against the two companies in the past two months, but differs from most of those in that it includes as co-defendants several important payment processors and credit-card companies.  Should that case go against the DFS sites and the processors, it could force a clampdown on the use of plastic for the funding of activity on DFS sites, another step in a separate battle that online-gambling companies already know far too well.

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