Olson v. Major League Baseball

447 F.Supp.3d 159

Kristopher R. OLSON, Christopher Lopez, Warren Barber, Christopher Clifford, and Erik Liptak, individually and on behalf of all others similarly situated, Plaintiffs,

v.MAJOR LEAGUE BASEBALL; MLB Advanced Media, L.P.; Houston Astros, LLC ; and Boston Red Sox Baseball Club, L.P., Defendants.

20-cv-632 (JSR)

United States District Court, S.D. New York.

Signed April 3, 2020

Eric L. Cramer, Patrick Fanning Madden, Berger Montague PC, Philadelphia, PA, Ian Wise Sloss, Steven Lawrence Bloch, David S. Golub, Silver Golub & Teitell LLP, Stamford, CT, for Plaintiff Kristopher R Olson, Erik Liptak, Christopher Lopez, Warren Barber.

John D. Radice, Radice Law Firm, P.C., Princeton, NJ, Kenneth Bruce Pickle, Radice Law Firm PC, Long Beach, NJ, Eric L. Cramer, Patrick Fanning Madden, Berger Montague PC, Philadelphia, PA, Ian Wise Sloss, Silver Golub & Teitell LLP, Stamford, CT, for Plaintiff Christopher Clifford.

Adam Rhys Brebner, John Louis Hardiman, Benjamin Robert Walker, Hannah Lonky Fackler, Sullivan and Cromwell, LLP, New York, NY, for Defendants Major League Baseball, MLB Advanced Media, L.P.

Katherine B. Forrest, Lauren Ann Moskowitz, Michael T Reynolds, Cravath, Swaine & Moore LLP, New York, NY, for Defendant Boston Red Sox Baseball Club L.P.

Clifford Louis Thau, Hilary Lovett Preston, Marisa Antos-Fallon, Vinson & Elkins LLP, New York, NY, Michael Conrad Holmes, Vinson & Elkins LLP, Dallas, TX, for Defendant Houston Astros, LLC.

OPINION AND ORDER

JED S. RAKOFF, U.S.D.J.

A sport that celebrates "stealing," even if only of a base, may not provide the perfect encouragement to scrupulous play. Nor can it be denied that an overweening desire to win may sometimes lead our heroes to employ forbidden substances on their (spit) balls, their (corked) bats, or even their (steroid-consuming) selves. But as Frank Sinatra famously said to Grace Kelly (in the 1956 movie musical High Society ), "there are rules about such things."¹

One of these rules forbids the use of electronic devices in aid of the players' inevitable efforts to steal the opposing catcher's signs. In 2017 and thereafter, the Houston Astros, and somewhat less blatantly the Boston Red Sox, shamelessly broke that rule, and thereby broke the hearts of all true baseball fans. But did the initial efforts of those teams, and supposedly of Major League Baseball itself, to conceal these foul deeds from the simple sports bettors who wagered on fantasy baseball create a cognizable legal claim? On the allegations here made, the answer is no.

I. Background

This is a putative class action brought by fantasy sports players against defendants Major League Baseball and MLB Advanced Media, L.P. (collectively "MLB"), the Boston Red Sox Baseball Club, L.P. (the "Red Sox"), and the Houston Astros, LLC (the "Astros"). The named plaintiffs are five individuals who, between 2017 and 2019, participated in daily fantasy baseball contests hosted by DraftKings Inc. ("DraftKings"). Plaintiffs assert various fraud, negligence, unjust enrichment, and consumer protection law claims based on alleged harm caused by the defendants' representations and conduct surrounding the by-now-infamous sign-stealing scandal.

Specifically, the amended complaint alleges that plaintiffs Kristopher R. Olson, Christopher Lopez, Warren Barber, Christopher Clifford, and Erik Liptak, residents of Massachusetts, California, Texas, Florida, and Colorado, respectively, were participants in DraftKings daily fantasy baseball contests from April 2, 2017 to October 30, 2019. Amended Compl., ECF No. 20 ("AC") ¶¶ 121-141. Defendant MLB is an unincorporated association consisting of thirty Major League Baseball clubs, including the Astros and the Red Sox. Id. ¶ 22. MLB administers and operates the league through the Office of the Commissioner. Id. Defendant MLBAM is a limited liability partnership owned by the thirty major league clubs that has responsibility for internet and interactive marketing for MLB. Id. ¶ 23.

Plaintiffs' allegations against the defendants arise from plaintiffs' contracts with DraftKings. DraftKings is an online platform that operates fantasy sports contests on a daily and weekly basis across multiple sports. Id. ¶ 30. DraftKings's daily fantasy sports baseball ("MLB DFS") competitions require contestants to select a lineup of MLB players, each assigned a different "salary" value set by DraftKings. Id. ¶ 31. The salary is based on the reported past performance statistics of the MLB player. Id. DraftKings participants accrue fantasy points based on the real-life performance of the players they have "drafted" on the particular day or week covered by the contest, and the participants' total points at the end of the contest determines who wins a cash prize. Id. ¶ 32. Participants pay DraftKings a fee for each fantasy contest, a portion of which is kept by DraftKings and the remainder of which funds the contests' prizes. Id. ¶ 33.

The complaint alleges that in 2013 and 2015, MLBAM acquired equity stakes in DraftKings "sizeable enough to reap meaningful benefit from the rise of daily fantasy." Id. ¶¶ 35-36. Further, DraftKings and MLB entered into a "comprehensive league partnership" that provided for co-branding of MLB DFS baseball contests, allowed DraftKings to offer market-specific in-ballpark experiences, and gave DraftKings promotional rights, use of MLB league and team logos, the exclusive right to sign sponsorship deals with individual MLB member clubs, and a designation as MLB's "Official Daily Fantasy Game." Id. ¶ 36. Shortly thereafter, DraftKings announced individual partnerships with twenty-seven of MLB's member Clubs, including the Astros and the Red Sox. Id. ¶ 37.

During baseball games, pitchers and catchers use a series of "signs" to communicate the type of pitch being thrown, and the intended speed, movement, and location of the pitch. Id. ¶ 57. Keeping such signs secret from batters is critical to a pitcher's success because knowledge of which pitch is coming improves the batter's chances of hitting the ball. Id. While, nevertheless, sign-stealing is not prohibited per se, at all times here relevant MLB's rules and regulations prohibited using electronic devices to view or convey information about the opposing team's signs. Id. ¶ 54. All of MLB's member clubs have entered into an operating agreement pursuant to which the teams agree to be bound by the rules and regulations of MLB, including its electronic sign-stealing rules. Id. ¶ 44.

According to the complaint, during the 2017-2019 baseball seasons, officials and players of the Astros, the Red Sox, and likely other teams engaged in repeated instances of electronic sign stealing in violation of MLB's rules. Id. ¶¶ 70-114. MLB officially determined, and announced in a January 2020 press release by MLB Commissioner Robert Manfred, that the Astros engaged in such electronic sign stealing in the 2017 and 2018 seasons. Id. ¶¶ 88-92. Further, the MLB fined the Red Sox some unspecified amount in 2017 for an electronic sign stealing scheme. Id. ¶ 106. The complaint alleges that both teams significantly improved their batting performance during the class period when the sign stealing occurred. Id. ¶¶ 94-95, 107.

The thrust of plaintiffs' complaint is that defendants were aware of sign stealing by the Astros and Red Sox, but intentionally took no action to stop it in order to protect their financial interest and investment in DraftKings. Id. ¶¶ 198, 202. Furthermore, the complaint alleges that defendants made various false statements and omissions designed to conceal the fact of the sign stealing in order to deceive plaintiffs into believing that the MLB DFS competitions were a game of skill based on fair and legitimate player performance statistics. Id. ¶¶ 171, 205. Such deception was ultimately intended to induce plaintiffs and other DraftKings players to play MLB DFS, which they would not have done had they "known that the honesty of the player performance statistics on which [their] wagers were based and the results of [their] wagers were determined was compromised by MLB teams' and players' electronic sign stealing." Id. ¶¶ 124, 128, 132, 136, 140.

Based on this overarching theory of wrongdoing, plaintiffs -- on behalf of themselves, a nationwide class, and Massachusetts, California, Texas, Florida, and Colorado subclasses -- allege common law fraud, negligence, and unjust enrichment claims against all four defendants. They also allege violations of the consumer protection statutes of all 50 states against the MLB defendants, violations of the Texas Deceptive Trade Practices and Consumer Protection Act ("TDTPA") against the Astros, and violations of the Massachusetts Consumer Protection Act against the Red Sox. All four defendants have now moved to dismiss the Amended Complaint pursuant to Rule 12(b)(6).

To survive a motion to dismiss under Rule 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). After discarding allegations that amount to nothing more than legal conclusions, see Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), the court should "accept as true" what remains and "draw all reasonable inferences in plaintiff's favor." Beazley Ins. Co., Inc. v. Ace American Ins. Co., 150 F. Supp. 3d 345, 354 (S.D.N.Y. 2015) (citing In re Elevator Antitrust Litig., 502 F.3d 47, 50 (2d Cir. 2007) (per curiam)).

Plaintiffs' claims sounding in fraud must further comply with Rule 9(b), which mandates that such claims "state with particularity the circumstances constituting fraud." Fed. R. Civ. P. 9(b). "[I]n order to comply with Rule 9(b), ‘the complaint must: (1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the...