The Daily Fantasy Sports (“DFS”) industry continues to be the center of attention for media pundits, state and federal lawmakers, and high-profile lawyers. Since my last blog post explaining the DraftKings’ data leak that sparked the initial wave of scrutiny of DFS ((Alen Cisija, What You Need to Know About the DraftKings Data Leak (Part I), Mich. Bus. & Entrep. L. Rev. (Oct. 26, 2015), http://mbelr.org/what-you-need-to-know-about-the-draftkings-data-leak-part-i/#rf12-1561)), major American sports leagues have made efforts to distance themselves from the industry, ((Austin Knoblauch, Roger Goodell Concerned Over Role of Daily Fantasy, NFL.com (Nov. 22, 2015), http://www.nfl.com/news/story/0ap3000000585071/article/roger-goodell-concerned-over-role-of-daily-fantasy; Steve Fainaru & Mark Fainaru-Wada, Adam Silver: ‘Should Be a Regulatory Framework’ for Daily Fantasy Operators, ESPN.com (Oct. 22, 2015), http://espn.go.com/espn/otl/story/_/id/13941819/nba-commissioner-adam-silver-favor-regulation-daily-fantasy-operators)) seven states have banned major DFS companies from operating DFS contests, ((See Chris Grove, What Are the States Where You Can Play Daily Fantasy Sports?, Legal Sports Report (Nov. 14, 2015), http://www.legalsportsreport.com/daily-fantasy-sports-blocked-allowed-states/)), and numerous new lawsuits have been filed in both state and federal courts. ((See, e.g., Complaint, Walls v. DraftKings, Inc., No. 15-CV-02758 (W.D. Tenn. Nov. 23, 2015); Complaint, Facenda v. DraftKings, Inc., No. 15-CV-08922 (C.D. Cal. Nov. 17, 2015); Manzella v. DraftKings, Inc., No. 15-CV-02083 (N.D. Ala. Nov. 17, 2015))) In this post, I will focus specifically on the procedural hurdle the class action plaintiffs face in their legal battles against DraftKings and FanDuel (collectively, “Defendants”).
The prohibition of class action waivers in arbitration agreements has been challenged on the ground of contract unconscionability under state law. ((John Murray, Jr., The Supreme Court on Unconscionability, the FAA, and Class Arbitration, 2011 Emerging Issues 5659 (May 18, 2011))). In AT&T Mobility LLC v. Concepcion, however, the United States Supreme Court upheld the enforceability of class action waiver clauses and ruled that the Federal Arbitration Act (“FAA”), which strongly supports the validity and enforceability of arbitration agreements as written, ((Id.)) preempts state laws that deem them per se unenforceable. ((See Concepcion, 563 U.S. 333 (2011)))
The Supreme Court reversed, enhancing “its [already] strong support for the enforcement of arbitration agreements as written under the FAA.” ((Murray, supra note 7)) The court restated the purpose of the FAA as a “liberal federal policy favoring arbitration,” ((Concepcion, 563 U.S. at 346)) which requires the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings. ((Id. at 334)) “Requiring the availability of class arbitration,” the Court reasoned, was inconsistent with that purpose because it “interferes with fundamental attributes of arbitration.” ((Id. at 344; see also Murray, supra note 7 (“The majority . . . found that the [state law in question] interfere[d] with arbitration since a switch from bilateral to class arbitration sacrifices the principal advantage of arbitration—informality—thereby making the process slower, more costly, and more likely to generate procedural morass.”))) The Court further held that the FAA’s savings clause ((9 U.S.C. § 2 (2012) (“[A]n agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”)))—which allows arbitration agreements to be invalidated by generally applicable contract defenses such as fraud, illegality, and unconscionability—does not recognize defenses that apply only to arbitration, or derive their meaning from the fact that an agreement to arbitrate is at issue. ((Concepcion, 563 U.S. at 339))
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