Non-compete covenants leave sports betting executive idle

A Los Angeles trial court judge on Tuesday denied a Fanatics executive's request for a temporary restraining order enjoining his former employer, DraftKings, from enforcing non-compete covenants that he signed when he lived on the east coast.

Judge James C. Chalfant's order means that the head of the sports merchandise and betting company's Los Angeles office, Michael Hermalyn, has little to do at his new job except park cars, according to his attorney, quoted in the hearing transcript, who added he was partially speaking in jest.

Chalfant also issued an order to show cause for why a preliminary injunction should not be issued restraining DraftKings from enforcing its covenants against Hermalyn in California.

Hermalyn sued his former employer, DraftKings, on Feb. 1 to strike down the non-competes he signed in New Jersey. That day he also informed DraftKings of his resignation after more than three years as vice president, and his intention to join Fanatics VIP as president and head of its Los Angeles office.

Minutes later, Hermalyn's attorneys with Munger, Tolles & Olson LLP provided ex parte notice that they intended to seek an injunction preventing DraftKings from enforcing its noncompete agreements and non-solicitation agreement, according to court filings. Michael Z. Hermalyn, et al. v. DraftKings Inc., 24STCV02694 (L.A. Super. Ct., filed Feb. 1, 2024).

DraftKings shot back days later with a lawsuit in Massachusetts federal court accusing him of stealing confidential business information and taking it to Fanatics.

Massachusetts District Judge Julia E. Kobick on April 30 issued a 12-month temporary order effective Feb. 1 restraining Hermalyn from providing services to his new employer that are related to his job with DraftKings. The order followed an evidentiary hearing in which she concluded that Hermalyn was not credible.

"And taken as a whole, the evidence submitted at this stage in the proceedings suggests that Hermalyn has struggled with candor to the court," Kobick wrote. DraftKings Inc. v. Hermalyn, 1:24-cv-10299-JEK (D. Mass., filed Feb. 5, 2024).

Despite the denial of the temporary restraining order, Hermalyn's attorney in the Los Angeles action, Brad D. Brian, said he was pleased with the outcome of Tuesday's hearing.

"At the hearing, Judge Chalfant agreed with Fanatics and Mr. Hermalyn that the post-employment restrictive covenants are unenforceable under California law. He also agreed that the California litigation can proceed in parallel with the Massachusetts case brought by DraftKings until there is a final judgment in one of them," the chair of Munger, Tolles & Olson LLP said in an emailed statement.

DraftKings' attorneys with Gibson, Dunn & Crutcher LLP declined to comment on the record.

In DraftKings' opposition to Hermalyn's filing, James P. Fogelman wrote that "Plaintiffs' ex parte application seeks truly extraordinary and unusual relief: the issuance of an emergency temporary restraining order that is openly intended to undermine a preliminary injunction issued by a Massachusetts federal court. Hermalyn has tried repeatedly to stop the Massachusetts case in its tracks. The Massachusetts court has consistently rejected those efforts."

Their filings point out that the Massachusetts court concluded that DraftKings "established a substantial likelihood of success on its claims that Hermalyn breached his obligations not to compete with DraftKings, solicit DraftKings employees, or use or disclose DraftKings' confidential information, and also that Hermalyn misappropriated DraftKings' trade secrets."