Monday October 19th, 2015

Editor’s note: FanDuel is a sponsor of Sports Illustrated. This piece was pursued and executed independent of that business relationship. Sports Illustrated also has a partnership with DailyMVP, another daily fantasy sports provider.

A “totally independent” investigation by a law firm hired by DraftKings has cleared a DraftKings employee who turned a $25 entry fee on FanDuel into a $350,000 prize of wrongdoing. According to a statement released by DraftKings on Monday, an investigation led by Greenberg Traurig partner and former U.S. Attorney John Pappalardo found that Ethan Haskell did not receive insider information that could have advantaged him while playing FanDuel. The Pappalardo Report concludes that Haskell did not obtain this information, which revealed data on how DraftKings participants had drafted in a similar daily fantasy sports game, until 40 minutes after Haskell’s lineup was locked. As explained on SI.com, Haskell’s conduct has spawned more than a half-dozen lawsuits against DraftKings and FanDuel, as well as contributed to a criminal investigation by the U.S. Attorney’s Office in Tampa and states reclassifying or taking steps to reclassify DFS as betting.

DraftKings retaining Pappalardo helps to restore the company’s credibility

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​DraftKings decision to hire Pappalardo was sensible in that Pappalardo is a highly respected attorney in the Boston legal community. He has received numerous awards and has been involved in a variety of high-profile legal matters. For instance, as the U.S. Attorney for Massachusetts in 1991, Pappalardo arranged to turn Timothy Connolly, a former associate of James “Whitey” Bulger, into a key informant who helped to take down the famed crime boss. Later in private practice, Pappalardo defended George Cashman, a leader of the Teamsters Union Local 25, in an extortion and embezzlement case. Given his stature, Pappalardo surely would not have agreed to represent DraftKings as a client unless he had assurances from DraftKings executives that he would be granted complete access in the investigation.

Limitations to the Pappalardo Report

Pappalardo’s stellar reputation does not mean his report for DraftKings is without limitations. As we saw with the investigation conducted by a similarly highly respected attorney, Ted Wells, into whether the New England Patriots intentionally used slightly underinflated footballs during the 2015 AFC Championship Game, DraftKings labeling Pappalardo’s investigation “totally independent” does not make it so. Even the most honest and thorough “independent” investigation should not be considered neutral, unbiased or conclusive.

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For starters, when a client hires a law firm to investigate a business practice, an attorney-client relationship is formed. This relationship normally involves a duty on the part of the attorney to share advice on how to avoid or minimize potential liability. There is also a duty of confidentiality and a duty to avoid conflicts of interest. A law firm conducting an investigation is thus unlikely to publicly conclude that a client has broken the law. This is true even if the client attempts to assure the public that the investigation is “independent.”

Recall how Wells attempted to invoke the attorney-client privilege during Tom Brady’s appeal hearing with Roger Goodell on June 23, 2015. Wells answered, “yes,” when Brady attorney Jeffrey Kessler asked him, “Did you consider the NFL to be your client for purposes of the attorney-client privilege with respect to the preparation of this report?” Wells added, “To my understanding, I was being hired by the NFL, and that's who pays my bills….” To be clear, the NFL paying Wells in an attorney-client relationship did not make Wells unreliable or dishonest, but it highlighted that his professional responsibility was to the NFL, not to the public or Brady. Pappalardo owes the same kind of professional responsibility to DraftKings.

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Second, statements made by employees to an independent investigator are not made while under oath. Therefore, employees who spoke with Pappalardo did not so with the threat of perjury, which is a felony for knowingly lying while under oath. That’s not to say DraftKings employees would not face other sanctions for lying to Pappalardo, such as being suspended, fired or breaching an employment contract. Still, those consequences are not nearly as dire as the risk of criminal charges and imprisonment and thus the possibility of lying, embellishing or obfuscating is more likely in a company investigation than during a criminal investigation.

Third, independent investigators lack subpoena powers. This can have the effect of preventing the investigator from meeting with all relevant witnesses and accessing all relevant evidence. Such a limitation has appeared particularly impactful in certain “independent” investigations, such as the one conducted by former FBI Director Louis Freeh into Penn State following the Jerry Sandusky child abuse scandal. It appears Pappalardo had significant access in his investigation, as the DraftKings’ press release insists that Pappalardo met with “all senior management” and reviewed “all” relevant documentation. Then again, attorneys representing clients who are suing DraftKings may disagree with DraftKings’ characterization or at least want to find out for their own if it is true. Those attorneys would undoubtedly like to ask questions to DraftKings’ employees while they are under oath.

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Fourth, it will be interesting to see whether materials uncovered by Pappalardo will be subject to any pretrial discovery orders in the various consumer lawsuits filed against DraftKings. You can be sure attorneys suing DraftKings will demand to inspect Pappalardo’s findings. Normally, however, materials exchanged between clients and attorneys in preparation of litigation are protected by the attorney-client privilege.

Bottom-line: DraftKings made a wise move in retaining Pappalardo, but his report likely won’t clear the company from the mounting legal problems it faces.

DraftKings hires former Massachusetts Attorney General Martha Coakley

According to The Boston Globe, DraftKings made another significant legal move on Monday: it hired former Massachusetts Attorney General Martha Coakley as an outside adviser on legislative and regulatory matters. Coakley, who served as Attorney General from 2007 to January of this year, is an influential figure in the Massachusetts legal and political communities. She unsuccessfully ran for U.S. Senator and Massachusetts Governor against Scott Brown and Charlie Baker, respectively, but is a skilled and seasoned attorney. Coakley is also familiar with legal issues concerning the gaming industry. She played a meaningful and controversial role in Massachusetts adopting casino gambling.

In addition, some of the assistant attorneys general and staff members who worked for Coakley are likely still employed by the Massachusetts Attorney General’s Office, which is now run by Attorney General Maura Healey and which is actively exploring the lawfulness of DFS under Massachusetts law. On Monday, Healey signaled that DFS might be vulnerable to regulatory scrutiny and perhaps legal challenge.  A spokesperson for Healey noted, “There is little question that this industry will need to be regulated in order to protect consumers." Given that DraftKings is headquartered in Boston, the company is paying close attention to the Massachusetts Attorney General Office’s probe. Coakley advocating on behalf of DraftKings should only help the company in its interactions with state government officials.

Michael McCann is a Massachusetts attorney and the founding director of the Sports and Entertainment Law Institute at the University of New Hampshire School of Law. This fall he is teaching an undergraduate course at UNH titled “Deflategate.” McCann is also the distinguished visiting Hall of Fame Professor of Law at Mississippi College School of Law and he teaches “Intellectual Property Law in Sports” in the Oregon Law Sports Law Institute. As a disclosure, one of McCann’s family members is represented in a personal matter by an attorney who represents a plaintiff in John Weaver v. FanDuel and DraftKings.

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