The case of the day is DraftKings Inc. v. Hermalyn (1st Cir. 2024). Hermalyn, who lived in New Jersey, worked for DraftKings, the Boston-based sports betting company. He mostly worked in New Jersey and New York, but he was in Massachusetts for work about once every six weeks. He had an employment agreement with DraftKings, which the parties agreed would be governed by Massachusetts law, that included a one-year covenant not to compete. He quit his job and moved to Los Angeles to work for a subsidiary of Fanatics, another gambling company. DraftKings sued in the District of Massachusetts and sought a preliminary injunction.

California has a statute that makes noncompetition agreements generally unenforceable. Under Massachusetts law, noncompetition agreements are generally enforceable, though our statute imposes a one-year limitation in most cases and several other requirements. So the issue was conflict of laws. Did Massachusetts law, or California law, govern the dispute? If Massachusetts law governed, should California be excluded from the scope of an injunction? The district judge ruled in DraftKings’ favor, and the case was on appeal.

The court began by observing, correctly, that Massachusetts conflict-of-laws rules applied to the case, because the case was brought in Massachusetts. Under Massachusetts law, the parties’ choice of law generally governs, though there is a public policy exception. Under Oxford Global Resources v. Hernandez, the Supreme Judicial Court’s leading case on the issue, the courts will only override a choice of law on public policy grounds if applying Massachusetts law would violate a “fundamental policy” of the foreign state, if the foreign state has a “materially greater interest” than Massachusetts in the issue, and that California law would apply but for the parties’ choice of law.

The First Circuit decided the case on the second prong of Oxford, the “materially greater interest” prong. In Oxford, the court had applied California law rather than Massachusetts law to a non-compete dispute despite a choice of law. But the First Circuit distinguished Oxford in two ways. First, in Oxford, the employee had worked for the former employer in California and breached the agreement there, and then he went to work for the new employer, also in California. On those facts, Massachusetts’ interest is not so clear, and the SJC’s holding was that California’s interest was greater because the employee had worked there and had breached his contract there.

Second, Massachusetts’s legislature enacted a major reform to the noncompetition law just days before the Oxford decision in 2018. The new law was purely prospective, and thus Oxford did not discuss it. And it was enacted instead of competing bills that would have followed California’s approach and essentially banned noncompete agreements. In other words, Massachusetts now had a carefully considered legialtive policy about noncompetes, just like California. In light of those developments, the court found that the employee could not show that California’s interest in applying its policy was materially greater than Massachusetts’ interest.¹The court also rejected the argument that at least the injunction should not apply in California. It noted that sports betting is illegal under California law, so the employee, whose job involved “creating and keeping relationships with digital-gaming customers,” would be dealing with customers outside of California. So excluding California from the injunction would “entirely undercut [its] effectiveness.” Thus it affirmed the preliminary injunction.

Image credit: Jayne Kamin (CC BY)

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  The court also rejected the argument that at least the injunction should not apply in California. It noted that sports betting is illegal under California law, so the employee, whose job involved “creating and keeping relationships with digital-gaming customers,” would be dealing with customers outside of California. So excluding California from the injunction would “entirely undercut [its] effectiveness.”