FanDuel, DraftKings Lawsuit Targets Credit Card Cos. and Banks

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On Thursday, a class action lawsuit was filed against JPMorgan Chase & Co., Capital One, MasterCard, Visa, American Express and other firms who processed payments for online fantasy sports giants DraftKings and FanDuel. DraftKings and FanDuel were also named as defendants. This class action lawsuit filed in Manhattan is thought to be the first of several lawsuits of its kind.

Plaintiffs in the fantasy sports class action lawsuit claim that credit card companies and banks should have known that FanDuel and DraftKings were offering illegal gambling operations that were in violation of both state and federal law even before the two gaming companies received cease-and-desist letters from New York Attorney General Eric Schneiderman on Nov. 10.

“Significantly, the burden is on the payment provider to prohibit restricted transactions or risk civil or criminal punishment,” the plaintiffs argue in the class action lawsuit.

FanDuel and DraftKings are the top leaders among their peers in the daily fantasy sports circle. With these companies, players can select their fantasy players daily from all the major sports team’s rosters. Fantasy sports players are eligible to win cash prizes for their players’ real life sports wins.

Both companies have previously claimed that their daily fantasy sports games require player skill. Those players can use their knowledge of various sports leagues to draft their ideal teams against rival players.

However, Attorney General Schneiderman and others who have voiced criticism of the daily fantasy sports industry say that these games are based on chance events outside the gamers’ control, categorizing daily fantasy sports as gambling. Schneiderman also filed two enforcement actions on Tuesday seeking injunctions against the two companies.

So far, DraftKings and FanDuel have been unsuccessful in having the cease-and-desist order reversed. DraftKings has continued business as usual while FanDuel has temporarily ceased payment collection from customers.

The plaintiffs in the recent daily fantasy sports class action lawsuit seek to certify a nationwide Class as well as a New York subclass. They bring forth eight counts against the defendants including multiple allegations of state and federal law violations, unjust enrichment, fraud and misrepresentation and negligence.

The class action lawsuit seeks an injunction against the defendants from engaging in the allegedly unlawful practices named in the lawsuit as well as restitution for the past six years, and applicable damages including statutory, treble and punitive damages.

Both credit card companies and banks have extensive regulations for anti-money-laundering at state and federal levels, and the recent turn of events has gotten the companies to look more closely at their procedures and relationships with the daily fantasy gaming sites.

After facing class action lawsuits like this, these financial institutions are left to ponder the nature of their businesses, and to ask themselves if the revenue from payment transactions is worth the risk of litigation and regulators bringing forth enforcement actions. They will also have to consider their actions that were not declared illegal at the time, as legal cases can still be brought forth alleging that institutions “should have known better.”

The plaintiffs are represented by Hunter J. Shkolnik and Annie E. Causey of Napoli Shkolnik LLP and Brittany Weiner of Imbesi Law PC.

The FanDuel DraftKings Payments Class Action Lawsuit is Guttman, et al. v. Visa Inc., et al., Case No. 1:15-cv-09084, in the U.S. District Court for the Southern District of New York.
UPDATE: On June 30, 2016, daily fantasy sports player plaintiffs laid out their grievances in a 273-page consolidated class action lawsuit alleging DraftKings and FanDuel duped players into participating in illegal gambling operations that gave an unfair advantage to their own employees who also participated in the daily competitions.