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Fantasy Players Take MLB Cheating Suit To 2nd Circ.

August 17, 2020

By Zachary Zagger | Law360 (August 13, 2020) -- Fantasy sports players asked the Second Circuit Wednesday to give them another crack at a proposed class action alleging Major League Baseball undermined the fantasy contests by failing to take proper action to stop cheating by the Houston Astros and Boston Red Sox.

The daily fantasy sports contestants alleged MLB and the teams duped consumers into paying to participate in fantasy contests by marketing them as games of skill, despite knowing that the Astros and Red Sox were manipulating ball games — and thus distorting the underlying MLB players' statistics — by using electronic equipment to steal the signs of opposing teams' pitchers.

U.S. District Judge Jed Rakoff tossed the claims in April, finding it was not clear that MLB was responsible for the outcomes of DFS contests hosted by third-party companies like DraftKings. The judge also said it was not clear exactly what MLB said that misled consumers, or that the DFS contestants were actually harmed by the tainted statistics.

In their appeals brief Wednesday, the contestants argued they should be able to move forward with their claims. They cited the MLB's general statements regarding the integrity of the games and the performance of the players, even as the league allegedly knew there was cheating.

Judge Rakoff "held, without explanation, that only false statements about fantasy baseball itself could be actionable," the DFS contestants told the Second Circuit.

"This fact-intensive holding, even if permissible on a motion to dismiss, was clearly wrong," the brief said. "Because real-life player performance dictates contestants' fantasy player selections and the outcomes of their MLBDFS contests, contestants, of course, rely on representations about real-world baseball."

In DFS contests, participants compete for cash prizes by selecting an imaginary roster of real-life athletes with points awarded to each contestant based on the statistical performance of those athletes in games on a certain day or over a short period of days.

The DFS contestants argued the elaborate sign-stealing schemes perpetrated by the Astros and Red Sox distorted the statistics of both pitchers and batters, thereby tainting DFS contests affected by players. MLB was more aware of what was going on than what it let on, they said.

"Defendants placed their financial interests above maintaining the integrity of the game and, therefore, chose to conceal the clubs' electronic sign stealing, even though defendants knew it corrupted MLBDFS contests and that consumers would not pay to participate in the contests if they knew about the electronic sign stealing," the DFS contestants argued.

In his April ruling, Judge Rakoff found MLB and the teams made some "plausibly false" statements about the pitch-stealing schemes, but ultimately said the connection between those scandals and any harm suffered by the plaintiffs was "simply too attenuated" to hold the league legally liable. Judge Rakoff later refused to alter that ruling.

MLB has argued the plaintiffs are "conflating" baseball and fantasy baseball. The league said it has never promised, and could never promise, that the sport will be played without any rules being broken. As a result, the league said, fans cannot claim to have expected games to be completely free of rules violations.

Earlier this year, MLB Commissioner Rob Manfred disciplined both the Red Sox and the Astros after separate investigations confirmed reports that the teams had used video replay and other electronic means to decipher the pitch signs of opposing pitchers to help their batters know what pitch was coming. The Astros won the World Series in 2017, and the Red Sox won the following year.

Both Astros general manager Jeff Luhnow and field manager A.J. Hinch were fired after MLB hit them with yearlong suspensions. The Red Sox and manager Alex Cora, who was previously an assistant coach for the Astros under Hinch, also parted ways in January before MLB suspended Cora.

Meanwhile, the New York Yankees are fighting the release of a letter from Manfred to the team about the misuse of a dugout phone to communicate, which the team publicly said was a minor "technical" violation of league rules. Judge Rakoff had unsealed the letter after he dismissed the case, but the Yankees said its release could cause "significant reputational injury." That order is on hold while the Yankees appeal.

The DFS contestants have pointed to that situation as an example of how MLB misled fans and DFS players on the extent of cheating it knew was occurring.

Counsel for the plaintiffs and MLB did not immediately respond to requests for comment Thursday.

The DFS contestants are represented by David S. Golub and Steven L. Bloch of Silver Golub & Teitell LLP.

MLB is represented by John L. Hardiman, Benjamin R. Walker and Hannah Lonky Fackler of Sullivan & Cromwell LLP.

Counsel information for the teams was not immediately available.

The case is Olson v. Major League Baseball, case number 20-1841, in the U.S. Court of Appeals for the Second Circuit.

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