{"id":10990,"date":"2020-03-26T20:06:28","date_gmt":"2020-03-26T20:06:28","guid":{"rendered":"https:\/\/www.steinberglawfirm.com\/?p=10990"},"modified":"2022-04-27T01:01:33","modified_gmt":"2022-04-27T01:01:33","slug":"an-arbitraje-fantasia-en-el-mundo-de-los-demandantes-deportivos-obligados-a-arbitrar-con-los-demandados-que-no-entraron-en-acuerdos-de-arbitraje-con","status":"publish","type":"post","link":"https:\/\/www.steinberglawfirm.com\/es\/blog\/an-arbitration-fantasy-in-the-world-of-fantasy-sports-plaintiffs-compelled-to-arbitrate-with-defendants-they-did-not-enter-into-arbitration-agreements-with\/","title":{"rendered":"Una fantas\u00eda arbitral en el mundo de los deportes de fantas\u00eda: Demandantes obligados a arbitrar con demandados con los que no celebraron acuerdos de arbitraje"},"content":{"rendered":"\n

An addendum to the old adage that \u201cbad facts make bad law\u201d\nmay be in order, with the addendum to be: \u201cthe sheer size and manageability\ndifficulties of complex class actions make bad law.\u201d  In the fantasy sports multidistrict\nlitigation pending in the United States District Court for the District of\nMassachusetts, the Court grossly exceeded the limits on arbitration law by compelling\nplaintiffs to arbitrate claims against parties they did not enter into arbitration\nagreements with.  The decision has been\ntouted as following logically from existing arbitration law and as demonstrating\na \u201ctactical defense\u201d and element of a \u201clitigation strategy\u201d for defendants.[1]<\/a>  To the contrary, the decision is a dangerous,\nunsupported, and erroneous extension of arbitration law both because it is not\nsupported by the caselaw it relies upon and more fundamentally, because it crosses\nthe line into a deprivation of plaintiffs\u2019 constitutional rights.<\/p>\n\n\n\n

Background<\/span><\/p>\n\n\n\n

The In re Daily\nFantasy Sports Litigation<\/em> MDL centralizes more than eighty individual and\nclass actions for pretrial proceedings. \nThe defendants consist of DraftKings, Inc., FanDuel, LLC, and entities\nthat provided payment-processing services to DraftKings and FanDuel.  The plaintiffs consist of players on the\nsites and the players\u2019 family members who did not play but assert claims under various\nstate gambling laws.  Some of the\nplaintiffs played on only one site but assert claims against the other site on\nthe basis of an alleged conspiracy between the two sites, and these plaintiffs\nwere referred to as \u201ccrossover plaintiffs.\u201d \n<\/p>\n\n\n\n

The defendants all moved to compel arbitration.  For a player plaintiff who played on a\nparticular site, that site moved to compel arbitration based on an arbitration\nprovision in the terms for registering to play on the site.  For the crossover plaintiffs, players who\nasserted claims against a site but had not played on that site and therefore\nhad not entered into an arbitration agreement with that site, DraftKings and\nFanDuel moved to compel arbitration with them based on an argument that their\nclaims were intertwined with the other claims subject to an arbitration\nagreement.  Similarly, despite the lack\nof an arbitration agreement between any plaintiff and any payment-processing\ndefendant, the payment-processing defendants moved to compel arbitration based\non an argument that the claims against them were intertwined with the claims\nagainst DraftKings and FanDuel.<\/p>\n\n\n\n

The District Court found that all of the player plaintiffs\u2019\nclaims against DraftKings, FanDuel, and the payment-processing defendants were\n\u201cintertwined\u201d so the player plaintiffs were equitably estopped from refusing to\narbitrate any of their claims.  In doing\nso, the Court acknowledged that arbitration is contractual and there was no\narbitration agreement for the crossover claims. \nHowever, the Court found that there are circumstances where a plaintiff\ncan be required to arbitrate a claim despite the lack of a contract with the\ndefendant where the claims against that defendant are \u201cintertwined\u201d with claims\nthat are subject to an arbitration agreement.<\/p>\n\n\n\n

The Court stated that this is a\n\u201cspecies of equitable estoppel\u201d whereby \u201cunder the unique facts of the case at\nhand, it would be inequitable to allow the party not contractually bound to\narbitrate to avoid participation in an arbitration in which the issues and\ninterests of both the bound are unbound parties are affected.\u201d  The Court found that the claims were\nintertwined because they were the same claim (i.e.<\/em>, the same civil conspiracy claim against the two parties with\none subject to an arbitration agreement and the other not).<\/p>\n\n\n\n

The Decision Doesn\u2019t Follow Precedent<\/span><\/p>\n\n\n\n

While true that courts have, in\nvery limited circumstances, compelled arbitration with a non-signatory, the Daily Fantasy Sports <\/em>decision goes far\nbeyond the law recognized in those decisions.[2]<\/a>  <\/p>\n\n\n\n

The Court relied on First\nCircuit, Second Circuit, and Massachusetts Supreme Court opinions, but those\nopinions do not support the Daily Fantasy\nSports <\/em>outcome.  In the first\ndecision relied upon, Sourcing Unlimited,\nInc. v. Asimco Intern., Inc.<\/em>, 526 F.3d 38 (1st Cir. 2008), the\nnon-signatory entity that the plaintiff sued was a subsidiary of the parent\ncorporate entity that the plaintiff entered into the arbitration agreement\nwith.  The Sourcing Unlimited <\/em>Court held the plaintiff was compelled to\narbitrate the claims against the non-signatory entity.  However, the court only arrived at that\nresult because of the relationship between the signatory and non-signatory\nentities and because the claims the plaintiff refused to arbitrate with the\nnon-signatory were claims that \u201cessentially arise from the terms of\u201d and\n\u201ceither directly or indirectly invoke the terms of\u201d the contract at issue.  Therefore, the Sourcing Unlimited <\/em>decision was a special set of circumstances and\ndoes not support the Daily Fantasy Sports\n<\/em>result.<\/p>\n\n\n\n

In the second decision relied\nupon, Thomson-CSF, S.A. v. American\nArbitration Ass\u2019n<\/em>, 64 F.3d 773 (2d Cir. 1995), a supplier entered into an\nagreement with a distributor for the exclusive purchase and supply of a\ncomponent.  A new parent entity then\npurchased the supplier.  At the time the\nnew parent entity began contemplating the purchase of the supplier, the\ndistributor informed the new parent that the distributor would hold the new\nparent to the exclusive supply portion of the contract requiring it to sell the\ncomponent only to the distributor.  The\nnew parent entity asserted it was not bound by the agreement, and the\ndistributor filed a demand for arbitration against the supplier and the new\nparent entity.  The new parent entity\nfiled suit seeking a declaration that it was not bound by the agreement, and in\nresponse, the distributor filed a motion to compel arbitration.  While the trial court granted the distributor\u2019s\nmotion to compel arbitration based on the new parent voluntarily becoming an\naffiliate of the supplier, on the degree of control the parent exercised over the\nsupplier, and on the interrelatedness of the issues, the Second Circuit\nreversed holding that there was no relationship sufficient to compel the\nnon-signatory new parent to arbitrate. \nThe Second Circuit recognized that non-signatories can be compelled to\narbitrate, but only in the limited circumstances where \u201cdictated by the\nordinary principles of contract and agency.\u201d \nThe Second Circuit recognized five theories for binding non-signatories\nto arbitration agreements, all of which \u201carise out of common law principles of\ncontract and agency law\u201d and which consist of \u201c1) incorporation by reference;\n2) assumption; 3) agency; 4) veil-piercing\/alter ego; and 5) estoppel.\u201d  The Second Circuit held none of those five\ntheories applied.  As to the estoppel\ntheory, the Second Circuit found it inapplicable because estoppel requires that\nthe party to be bound have derived a direct benefit from the contract and the\nnew parent entity did not derive any direct benefit from the contract.  The Second Circuit also found the estoppel\ntheory inapplicable because estoppel requires that the claims to be arbitrated\nare \u201cintegrally related to the contract containing the arbitration clause\u201d\nwhereas the claims against the new parent entity were not integrally related.  In arriving at that result, the Second\nCircuit expressly rejected the position that claims with a non-signatory being\nintertwined with claims with a signatory is sufficient to compel the non-signatory\nto arbitrate.  In doing so, the Court\nemphasized: \u201cArbitration is strictly a matter of contract; if the parties have\nnot agreed to arbitrate, the courts have no authority to mandate that they do\nso.\u201d  Therefore, in the Thomson-CSF <\/em>decision the Second Circuit\nexplicitly rejected the Daily Fantasy\nSports<\/em>\u2019 Court\u2019s rationale for compelling arbitration.<\/p>\n\n\n\n

Finally, in the third decision\nrelied upon, Sokol Holdings, Inc. v. BMB\nMunai, Inc.<\/em>, 542 F.3d 354 (2d Cir. 2008), the plaintiff entered into a\ncontract to purchase a majority shareholder\u2019s interest in an oil and gas\ncompany.  The agreement to purchase the\nshareholder\u2019s interest provided for the arbitration of all disputes.  The plaintiff sued a corporation and its\nofficers and directors that the plaintiff alleged tortuously interfered with\nthe plaintiff\u2019s contract to purchase the majority interest.  The defendants moved to compel arbitration\npursuant to the plaintiff\u2019s contract with the shareholder and argued the\nplaintiff was estopped from refusing to arbitrate due to the claims being\nintertwined with the contract containing an arbitration provision.  The trial court and then the Second Circuit\nrejected the defendants\u2019 argument due to the fact that \u201c[i]t is black letter\nlaw that an obligation to arbitrate can be based only on consent.\u201d[3]<\/a>  The Second Circuit acknowledged the\nplaintiff\u2019s claims were \u201cintertwined\u201d with the contract containing an\narbitration provision because the plaintiff would have to prove the breach of\nthat contract to prevail on its tortious interference claim.  The Second Circuit emphasized that \u201cin\naddition to the \u2018intertwined\u2019 factual issues, there must be a relationship\namong the parties of a nature that justifies a conclusion that the party which\nagreed to arbitrate with another entity should estopped from denying an obligation\nto arbitrate a similar dispute with the adversary which is not a party to the\narbitration agreement.\u201d[4]<\/a>  The Second Circuit held the estoppel basis\nfor compelling a party to arbitrate with a nonsignatory requires that there be\na relationship between the party, the signatory, and the nonsignatory such that\nthe party would have known of the nonsignatory\u2019s role in the transaction at the\ntime the party entered into it and that it would be \u201cunfair\u201d for the party to\nclaim that the arbitration agreement extended only to the signatory and not to\nthe nonsignatory.  The Second Circuit\nalso explained that its refusal to compel arbitration as resulting from the\nfact that compelling a party to arbitrate with a nonsignatory through estoppel is\na finding the party consented to arbitrate with the nonsignatory, and absent a\nparty\u2019s consent, the party cannot be compelled to arbitrate.  Therefore, the Sokol <\/em>decision by the Second Circuit also explicitly rejected the Daily Fantasy Sports<\/em> rationale for\ncompelling arbitration.<\/p>\n\n\n\n

In both the Thomson-CSF <\/em>and Sokol<\/em>\ndecisions, the Second Circuit held that much more is required to compel\narbitration with a non-signatory than just claims intertwined with a contract\ncontaining an arbitration provision.  The\nSourcing Unlimited <\/em>decision\nrecognizes the same law finding arbitration with a non-signatory required only\nbecause of the relationship between the parties and the nature of the claims as\narising from the contract.  <\/p>\n\n\n\n

Reliance on Potential for Duplicative Proceedings and Inconsistent Outcomes<\/span><\/p>\n\n\n\n

The court also found that\narbitration should be compelled as to the crossover claims because absent\narbitration there would be \u201cpointless duplication of proceedings\u201d and \u201clikely\nsome risk of inconsistent outcomes.\u201d \nHowever, courts routinely acknowledge that arbitration can lead to\nduplicative proceedings and inconsistent outcomes but that these issues are not\na basis for refusing to compel arbitration.[5]<\/a>  Rather, courts acknowledge that the\ndisfavored duplicative proceedings and inconsistent outcomes are accepted in\nexchange for the purported benefits of arbitration.  Therefore, the duplication of proceedings and\nrisk of inconsistent outcomes is not a valid basis for compelling arbitration.<\/p>\n\n\n\n

Constitutional Issues<\/span><\/p>\n\n\n\n

Arbitration is a matter of contract.[6]<\/a>  Through a contract, the parties agree to\nwaive their constitutional rights to a jury trial and due process in a court of\nlaw and to have disputes set out in the contract decided in private\narbitration.[7]<\/a>  Parties only waive their constitutional\nrights to the extent set out in the contract. \nTherefore, if a court compels a party to arbitrate a dispute that the\nparty did not contractually agree to arbitrate, there is no legal basis for the\ncourt to do so and the court has violated the party\u2019s constitutional rights to\na jury trial and due process in a court of law. \n<\/p>\n\n\n\n

The result seems indisputable that were I to get into a car\ncrash with someone I\u2019ve never met before and never entered into a contract\nwith, a court compelling me to arbitrate my claims against that person arising\nfrom the car crash would be an unconstitutional deprivation of my right to a\njury trial and my right to due process. \nEqually clear is that were I to enter into a contract with a builder to\nconstruct a home for me with a provision that claims arising from that\nconstruction were to be arbitrated (assuming I knowingly and voluntarily agreed\nto arbitrate, the agreement was not the result of fraud or unconscionability,\nand the agreement was otherwise a valid agreement to arbitrate), I would\nlegally be required to arbitrate a claim that the builder failed to build the\nhome as required by the contract. \nSomewhere between these two cases is the line between the waiver of a\nconstitutional right to arbitrate and an unconstitutional deprivation of jury\ntrial and due process rights.<\/p>\n\n\n\n

The Daily Fantasy Sports<\/em>\ndecision appears to cross the line and stray into the territory of\nunconstitutional deprivations of constitutional rights.  The crossover plaintiffs never contractually\nagreed to arbitrate any<\/em> claims with\nthe gambling site they did not play on. \nAssuming equitable estoppel can serve as a constitutionally permissible\nextension of a contractual agreement to arbitrate, the Daily Fantasy Sports <\/em>decision exceeds any potentially\nconstitutionally acceptable version of equitable estoppel.  The crossover plaintiffs did not interact\nwith the gambling site they did not play on, had no knowledge of any conspiracy\nor other relationship between FanDuel and DraftKings, and could not have\nforeseen that there would be any link between the terms of play on one gambling\nsite and the other gambling site on which they did not play.
<\/p>\n\n\n\n

\n\n\n\n

[1]<\/a> Melanie Conroy, District of Massachusetts Holds that Consumers with No Arbitration Agreements Must Arbitrate Their \u201cClosely Intertwined\u201d Class Action Claims, (Dec. 11, 2019), https:\/\/www.firstclassdefense.com\/district-of-massachusetts-holds-consumers-with-no-arbitration-agreement-must-arbitrate\/?_ga=2.170766432.1910665194.1577110023-235744224.1577110023<\/a>.<\/p>\n\n\n\n

[2]<\/a>\nSee Sunkist Soft Drinks, Inc. v. Sunkist\nGrowers, Inc.<\/em>, 10 F.3d 752 (11th Cir. 1993); J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, S.A.<\/em>, 863\nF.2d 315 (4th Cir. 1988); McBro Planning\n& Dev. Co. v. Triangle Elec. Constr. Co.<\/em>, 741 F.2d 342 (7th Cir. 1984).<\/p>\n\n\n\n

[3]<\/a>\nSokol<\/em>, 542 F.3d at 358.<\/p>\n\n\n\n

[4]<\/a>\nSokol.<\/em>, 542 F.3d at 359.<\/p>\n\n\n\n

[5]<\/a>\nSee, e.g.<\/em>, Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp.<\/em>, 460 U.S. 1,\n20 (1983) (\u201c[T]he relevant federal law requires<\/em> piecemeal resolution when\nnecessary to give effect to an arbitration agreement.\u201d); Reliance Ins. Co. v. Raybestos ProductsCo.<\/em>, 382 F.3d 676, 679\u201380\n(7th Cir. 2004) (reversing district court\u2019s refusal to compel arbitration due\nto risk of inconsistent results and duplicative proceedings because FAA\ncontains no exception for such circumstances); In re Prudential Ins. Co. of America Sales Practice Litigation All\nAgent Actions<\/em>, 133 F.3d 225, 234 (3d Cir. 1998) (\u201cWhile we share the\ndistrict court’s apprehension toward inconsistent\nresults and inefficiencies caused by arbitration, we cannot frustrate the enforcement of\nthe arbitration clause pursuant to the Federal Arbitration Act on the basis of this concern.\u201d); Tai Ping Ins. Co. v. M\/V Warschau<\/em>, 731\nF.2d 1141, 1145 (5th Cir. 1984) (\u201cWhile [the party opposing arbitration]\nasserts that permitting the claim for indemnity to go foward in arbitration will produce \u201cduplication\nof effort, redundant testimony, and the possibility of inconsistent findings,\u201d\nwe think that these are the risks that parties to an arbitration\nclause must be considered to have contemplated at the time they struck their\nbargain.\u201d).<\/p>\n\n\n\n

[6]<\/a>\nSee, e.g.<\/em>, American Exp. Co. v. Italian Colors Restaurant<\/em>, 570 U.S. 228, 233\n(2013) (\u201cThis text [of the FAA] reflects the overarching principle that arbitration is a matter\nof contract.\u201d);\nRent-a-Center, West, Inc. v. Jackson<\/em>,\n561 U.S. 63, 67 (2010) (\u201cThe FAA reflects the fundamental principle that\narbitration is a matter of contract.\u201d); First\nOptions of Chicago, Inc. v. Kaplan<\/em>, 514 U.S. 938, 944 (1995) (\u201c[A]rbitration\nis simply a matter of contract between the parties; it is a way to resolve\nthose disputes\u2014but only those disputes\u2014that the parties have agreed to submit\nto arbitration.\u201d).<\/p>\n\n\n\n

[7]<\/a>\nJean R. Sternlight, Rethinking the Constitutionality of the Supreme Court\u2019s\nPreference for Binding Arbitration, 72 Tul. L. Rev. 1, 8 (1997).<\/p>\n","protected":false},"excerpt":{"rendered":"

Un ap\u00e9ndice al viejo adagio de que \"los hechos malos hacen la ley mala\" puede estar en orden, con el ap\u00e9ndice a ser: \"el gran tama\u00f1o y las dificultades de gesti\u00f3n de las acciones colectivas complejas hacen que la ley sea mala\". En el litigio multidistrito de deportes de fantas\u00eda pendiente en el Tribunal de Distrito de los Estados Unidos para el Distrito de Massachusetts, el Tribunal...<\/p>","protected":false},"author":4,"featured_media":18545,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[289],"tags":[],"class_list":["post-10990","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-construction-defect-case-law"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.steinberglawfirm.com\/es\/wp-json\/wp\/v2\/posts\/10990","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.steinberglawfirm.com\/es\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.steinberglawfirm.com\/es\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.steinberglawfirm.com\/es\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.steinberglawfirm.com\/es\/wp-json\/wp\/v2\/comments?post=10990"}],"version-history":[{"count":1,"href":"https:\/\/www.steinberglawfirm.com\/es\/wp-json\/wp\/v2\/posts\/10990\/revisions"}],"predecessor-version":[{"id":21226,"href":"https:\/\/www.steinberglawfirm.com\/es\/wp-json\/wp\/v2\/posts\/10990\/revisions\/21226"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.steinberglawfirm.com\/es\/wp-json\/wp\/v2\/media\/18545"}],"wp:attachment":[{"href":"https:\/\/www.steinberglawfirm.com\/es\/wp-json\/wp\/v2\/media?parent=10990"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.steinberglawfirm.com\/es\/wp-json\/wp\/v2\/categories?post=10990"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.steinberglawfirm.com\/es\/wp-json\/wp\/v2\/tags?post=10990"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}