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SAN FRANCISCO (CN) — A federal judge on Friday dismissed a class action which argues that fantasy sports website DraftKings is conducting illegal gambling in California.
The plaintiffs, two DraftKings users, sued the fantasy sports website in June, claiming that the company misrepresents the lawfulness of their “Daily Fantasy Sports” contests in California, a state that prohibits commercial gambling.
The users, Zhicheng Zhen and Jonathan Smith, argue that DraftKings violated the state’s Unfair Competition Law and Consumer Legal Remedy Act. They requested damages including money they said the platform had illegally taken from them.
U.S. District Judge Charles Breyer said that the plaintiffs had made a good argument that they suffered an economic injury.
“They were induced by a misrepresentation that the game was lawful, [and] they parted with money," the Bill Clinton appointee said.
However, Breyer ruled the complaint should be dismissed at this time because the plaintiffs were seeking equitable relief without demonstrating that monetary damages alone would be inadequate. Still, he said he would give them an opportunity to amend.
Wesley Griffith of Almeida Law Group, an attorney for the plaintiffs, responded that they intended to add on monetary relief to the complaint.
Breyer said he had to rule on the current complaint and not “what is down the pipe.”
“As it stands now, you are not asserting a legal claim,” he said.
Breyer contrasted their request for equitable monetary relief with an injunction — a common form of equitable relief that does not involve money.
“If plaintiffs came in and sought only an injunction, saying there are thousands of people out there that are California residents who believe they are engaging in a legal enterprise, which they are not according to the attorney general of California and the plaintiffs," then the complaint may have had more success, Breyer said. “But, that is not this case today.”
Griffith said that Breyer “hit the nail on the head” and clarified they would indeed seek an injunction.
“There is a need to stop this unlawful enterprise from operating in the state of California. [There are] millions of people that are being tricked into illegal gambling [and] breaking the penal code,” he said. “Many people in this case have placed dozens of bets. The scale of this is astronomical. We do think an injunction is appropriate here.”
In July, California Attorney General Rob Bonta issued an opinion saying that state law “prohibits the operation of daily fantasy sports games with players physically located within California, regardless of where the operators and associated technology are located.” However, attorney general opinions are only advisory and not legally binding.
In rebuttal, Richard Patch of Coblentz Patch Duffy & Bass, an attorney for DraftKings, said that an injunction would not solve the plaintiff’s lack of standing. The company argues the current lead plaintiffs did not suffer injury and cannot be representatives for a class action against DraftKings.
“Two DraftKings customers — one of whom opened his account over six years ago — have sued DraftKings to recover, among other things, entry fees for Daily Fantasy Sports (‘DFS’) contests that they admit they lost,” lawyers for the company wrote in a motion to dismiss. “They do not allege they should have won those DFS contests, nor do they claim there was anything improper about how the DFS contests were conducted.” The company went on to argue it had “operated DFS contests openly, honestly, and permissibly in California since 2012.”
At the hearing, Breyer inquired who would be an appropriate plaintiff — asking whether an individual who had won contests on DraftKings would have standing versus someone who had lost.
“They argue that what is illegal about these bets is that the house, DraftKings, takes a percentage. It’s all disclosed, but that is what makes it illegal,” Breyer said. “Haven’t the winners lost something?”
Patch responded that DraftKings’ winners are aware they have to pay a percentage of the transaction and don’t have any economic standing to challenge. He also brought up state law that prohibits the enforcement of gambling contracts.
However, Breyer clarified that while state law says California won’t enforce gambling contracts as a matter of public policy, that refers to gambling losses — not seeking injunctive or other types of equitable relief.
“I think as a matter of public policy, it cuts against DraftKings,” he said. “If you want to know what the public policy is, I’ll tell you. No secret, there is a criminal statute, there is an opinion of the attorney general saying exactly what the public policy is, and it’s not what DraftKings says is the public policy.”
Breyer said he would decide on the issue of an injunction and whether state law allows him to move forward once plaintiffs submit a amended complaint, due Jan. 19, clarifying the exact type of relief they are seeking.
In a statement to Courthouse News, Griffith said that Breyer “confirmed the core theory of our case” that the daily fantasy sports contests operated by DraftKings “violate the California Penal Code’s prohibition on sports gambling, and those Penal Code violations serve as predicate acts for civil liability under the UCL and CLRA.”
“Our lawsuit seeks to stop DraftKings’ unlawful gambling operations in California and return all unlawfully taken sums to Californians,” he said.
A representative for DraftKings did not immediately respond to a request for comment.
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