FanDuel Founders Win Partial Discovery Ruling Against KKR and Shamrock

The founders suing the private equity firms that sold FanDuel in 2018 have won a procedural step that could matter more than its modest wording suggests. According to Casino.org's account of a 33-page order by New York special master Alan Scheinkman, KKR and Shamrock Capital must submit selected communications that would normally be shielded by legal privilege for in camera review. I have not seen the order itself, so the scope described here comes from that report.

The limits are important. The communications at issue concern FanDuel's pre-sale valuation, the drag-along rights the majority holders used to force the sale, and the proceeds expected to reach co-founder Nigel Eccles and the other founders. Documents prepared specifically in anticipation of litigation keep their protection, and the special master will decide whether plaintiffs' lawyers can see them at all. Casino.org also reports that the order does not find the defendants breached their fiduciary obligations under Scots law, though it describes the plaintiffs' Scots-law argument as having merit. Those two statements sit uneasily together, and a discovery order is not a merits ruling in either direction.

The leverage shift is real but bounded. Paddy Power Betfair, later Flutter, bought FanDuel for roughly $465.5 million in equity, or $559 million including debt and preferred instruments. Casino.org reads the sellers' liquidation preference as covering the first $559 million of proceeds, which would make that figure the value of their drag-along rights. That is the sellers' reading of the deal, not a finding, and the reviewed documents could strengthen or weaken it. Whoever bears the cost of a sale structured this way, in this case more than 100 co-plaintiffs including the founders, has a clearer route to the internal record than they had before the order.

What remains open is what the reviewed documents show and how quickly the parties agree a timeline before the New York Supreme Court's December 18 discovery deadline. A July ruling had already refused the defendants' request to dismiss the case, which Eccles called an "interim but important step." This order moves the case further toward evidence, but whether it changes the outcome depends on documents nobody outside the litigation has seen yet.