DraftKings and Fanatics clash in court over trade secrets, alleged employee poaching

The legal battle between DraftKings and Fanatics unfolded during a hearing on Tuesday, revealing a web of alleged secret dealings and accusations of trade secrets theft. The hearing, as reported by the Boston Globe, shed light on clandestine phone calls, purported attempts to lure employees with lucrative offers, and the contentious dispute over Michael Hermalyn's transition from DraftKings to Fanatics.

At the heart of the dispute is Hermalyn's case, the former head of VIP operations at DraftKings, who moved to a similar role at Fanatics. DraftKings initiated a federal lawsuit against the executive, alleging his involvement in a scheme to steal confidential information and bring it to Fanatics, thereby violating his non-compete agreement.

Court documents assert that Hermalyn held discussions with Fanatics' CEO, obtained DraftKings' confidential business plans, and subsequently resigned from DraftKings to assume a comparable position at Fanatics. 

DraftKings is seeking legal recourse, aiming to prevent Hermalyn from working at Fanatics and diverting customers. In February, the judge partially granted DraftKings' requests, permitting Hermalyn to commence work at Fanatics but restraining him from engaging with DraftKings VIP clientele.

During his appearance in Boston court on Tuesday, Hermalyn maintained his innocence, asserting: "I operated with extreme caution." He refuted allegations of attempting to recruit former colleagues to join him at Fanatics. However, two of Hermalyn's former co-workers, Andrew Larracey and Hayden Metz, recounted being offered positions by Hermalyn on his first day at Fanatics, contrary to his claims.

According to Larracey's notes on his phone, Hermalyn proposed compensation packages exceeding $3 million for Larracey and over $5 million for Metz. Metz recalled negotiations with Hermalyn extending late into the night, culminating in an offer exceeding $8 million.

Metz ultimately declined the Fanatics offer, while Larracey engaged in interviews with senior Fanatics executives but did not receive a formal job offer. Both individuals denied involvement in stealing confidential information, attributing any document copying to routine computer file transfers.

The case, presided over by U.S. District Judge Julia Kobick, hinges on determining the enforceability of Hermalyn's non-disclosure agreement, specifically whether he can proceed with employment at Fanatics or must adhere to a one-year waiting period stipulated in the agreement. Hermalyn, now based in California for his role at Fanatics, contests the validity of the non-disclosure agreement given his change in residency.