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Circuit Umps Look Poised to Knock Out Class Action Over Baseball Cheating Scandal

Citing Major League Baseball’s long history of corked bats, spitballs and steroids, the Second Circuit on Monday appeared unlikely to revive a class action that says a coverup of the 2017 electronic sign-stealing scandal cheated fans out of an honest fantasy baseball competition.

MANHATTAN (CN) — Citing Major League Baseball’s long history of corked bats, spitballs and steroids, the Second Circuit on Monday appeared unlikely to revive a class action that says a coverup of the 2017 electronic sign-stealing scandal cheated fans out of an honest fantasy baseball competition.

Oral arguments in the case before the federal appeals court got underway remotely this morning, with U.S. Circuit Judge Joseph Bianco pointing to precedent from the NFL’s Spygate scandal in which the Third Circuit said “that we shouldn’t second-guess a league’s enforcement of its own rules.” 

David Golub, a lawyer for the baseball fans who played in fantasy leagues through the website Draftkings, responded that the Spygate case was different it involved ticketholders who had nothing more than a license to attend the game.

In this case, however, Golub said the product is “fantasy baseball that Major League Baseball markets and helps DraftKings sell for enormous revenues.”

“What we’re dealing with is a product that Major League Baseball is helping to market for millions and millions of dollars of revenue and millions and millions of dollars of equity increase in their interest in DraftKings and selling that, knowing that people cannot use skill,” said Golub, who is with the Connecticut firm Silver Golub & Teitell,

Golub’s clients say Major League Baseball dishonestly marketed fantasy baseball with statistical data that the players claim was corrupted by a 2017 cheating scandal in which Houston Astros and Boston Red Sox teams used electronic devices to steal opposing catchers’ signs. 

The players claim the league deprived them of their exercise of skill in the fantasy baseball contests, but Monday’s panel of judges suggested that anyone following the sport with enough skill to wager on baseball statistics would also certainly be familiar enough with league’s record of chicanery. 

“Baseball has all sorts of cheating and always has,” Senior U.S. Circuit Judge Gerard Lynch said Monday. “Anyone who thinks they have skill in understanding baseball statistics know that there have been players who used corked bats, pitchers that mark up the ball or use spitballs. There are players who use steroids or other performance enhancing drugs.”

An Obama appointee, Judge Lynch also went on to challenge the premise of fantasy sports’ reliance on being a purported game of skill. “Isn’t this whole issue of ‘game of skill’ simply a legal fiction? The marketing of this as a game of skill is really a way of saying it’s not gambling for legal purposes,” he asked. 

“And that either makes sense or it doesn’t, it’s either the law or it’s not, but it really has nothing to do with what makes the game fun. What makes the game fun in part, like any other game, is that you can’t predict the outcome going into it.” 

On the road to today’s appeal, U.S. District Judge Rakoff, a fervent Yankees fan, tossed the suit in April on a motion to dismiss. Though he agreed that the baseball cheating scandal wounded fans across the country, but it did not give daily fantasy bettors a basis to sue for fraud. 

Rakoff noted that the Third Circuit’s ruling in the “Spygate” case was one of three instances where federal circuits declined to hold that sports organizations owe similar duties even to their direct customers, ticketholders. 

But the fantasy players say a jury should get the chance to study the misrepresentations they say were passed along by the league, including “expert recommendations” of professional baseball players for inclusion in fantasy contest lineups on the league’s television network. 

“It is a factual issue whether people think these statistics are fair,” Golub said Monday. “It is a factual issue whether people would participate in fantasy baseball contests they knew about the electronic sign stealing, if they knew that Major League Baseball was concealing electronic sign stealing.

“That’s what the complaint alleges: we would not participate if we knew about the electronic sign stealing. We would not participate if we knew this was being concealed,” Golub told the panel.

Filed 11 months ago in Southern District of New York, the $5 million federal class action led by DraftKings daily fantasy sports player Kristopher Olson accused the MLB of consistently promoting and engaging in fantasy baseball wagering contests through DraftKings that were “corrupt and dishonest.”  

But lawyers for Major League Baseball contend that attempts at cheating are a part of sports, and fans are aware of it. The “Spygate” scandal, for one, involved backlash over a New England Patriots employee who videotaped signals from the Jets sideline during a September 2007 game that the Patriots won 38-14. 

The Third Circuit had found in that case that sports fans cannot claim they don’t know “that players often commit intentional rule infractions in order to obtain an advantage over the course of the game.”  

Monday's hearing lasted about 45 minutes, during which Judge Lynch noted that randomness and luck are also inherently “baked into the sport.” 

“The sport has various ways of trying to police these things, but first of all, if they don’t catch the perpetrators, then those different forms of cheating effect the statistics,” the Obama appointed judge added. “And if they do catch them, so much for your skill.” 

MLB's counsel John Hardiman reprised Judge Lynch's earlier assertion that fantasy players were doing a lot of heavy lifting with the words "contest of skill."

"Plaintiffs are essentially arguing that that term, which is a term of use that DraftKings gives it to its participants, that because baseball has a licensing agreement with DraftKings ... that that’s tantamount to a representation by Baseball that there will be no rule-breaking or that it would immediately disclosed, and I guess, a representation that there will be rules about this sort of thing," said Hardiman, from the New York firm Sullivan & Cromwell.

"The other implausible aspect of the argument by the appellants, which Judge Lynch focused on, is there are so many things that can affect the ability of a fantasy player to predict the performance and appellants seem to acknowledge that," the MLB attorney said. "Their argument seems to be all of those other things do not change what is a contest of skill to a contest of chance, but that’s there’s something special about electronic sign stealing, special from all other even illegal things that we know can go on.

"There is no fraud because there is no misrepresentation," Hardiman concluded. "There is no negligent misrepresentation because there is no misrepresentation."

Circuit Judges Lynch and the Trump-appointed Bianco were joined on Monday’s panel by U.S. Circuit Judge Debra Livingston, a George W. Bush appointee. The panel reserved their decision on the appeal. 

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