Analysis: PredictIt Election Betting Case Gets New Order From Fifth Circuit

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Election betting

Election betting exchange PredictIt and a group of co-plaintiffs received some good news late in the afternoon on May 1.

The Fifth Circuit Court of Appeals panel rejected the Commodity Futures Trading Commission’s (CFTC) efforts to advance a new strategy by issuing a new letter to the site and filing a motion suggesting that the case was now moot in light of the new letter.

It was not, however, a clean sweep for the PredictIt plaintiffs at the Fifth Circuit, as the three-judge panel denied the plaintiffs’ motion for a holding of contempt and sanctions against the CFTC for filing the motion suggesting mootness.

The minor loss was sandwiched with more good news for the popular election betting market, as the Fifth Circuit clarified its previous injunction by enjoining (stopping) the CFTC from shutting down, prohibiting, or deterring the trading of contracts until 60 days after the issuance of final judgment.

What does this order mean in election betting case?

The order is perhaps PredictIt’s biggest win to date, though there may be an argument to be made that the initial stay allowing election betting markets to remain open was the site’s biggest win.

This order prevents the plaintiffs from being sent back to square one, and also provides the site and traders with added certainty that when a final order from the Fifth Circuit Court of Appeals does come down, it will not spell immediate freezing and liquidation of active markets. Instead, if the ultimate decision goes against PredictIt, there will be at least a 60-day period to allow for a winding down of markets.

The per curiam order (authored by the panel of judges, not an individual judge) does not, however, forecast an outcome on the substantive issues in the case. The May 1 order, though, can only be seen as a positive for PredictIt.

More of a tap than a slap

The PredictIt plaintiffs asked the Fifth Circuit to hold the CFTC in contempt and issue sanctions against the agency for what the plaintiffs argued was effectively an end-run around seeking to avoid a disfavorable judgment from the Court, stating:

The CFTC is plainly concerned that this Court is going to hold the agency’s efforts to close the PredictIt Market arbitrary and capricious.

So, after briefing on a dispositive motion and a preliminary injunction in the district court, after this Court enjoined closure of the Market pending appeal, after full merits briefing in this Court, and after counsel and three judges of this Court prepared for and participated in oral argument, the agency pulls an eleventh-hour stunt to avoid what it apparently believes to be an impending and adverse decision from this Court.

The three-judge panel, composed of Judge Graves and conservative stalwarts judges Ho and Duncan, ultimately rejected issuing sanctions and holding the CFTC in contempt. While perhaps a questionable strategy by the agency, there is an argument to be made that the introduction of the new letter and the suggestion of mootness falls within a vigorous representation of the agency.

The decision not to issue sanctions, however, is likely not a signal one way or another with regards to the judges leaning.

Clarifying the unclear

Back in January 2023, the Fifth Circuit granted the plaintiffs’ motion for an injunction, but the very short order lacked any detail on the scope of the injunction beyond that the injunction was issued pending the appeal.

The order of May 1 adds significant clarity to the order, as it specifies that the injunction stopping the CFTC from shutting down and ordering the liquidation of the PredictIt contracts will remain in place until, at least, 60 days after a final order on the appeal is entered.

What is next in election betting case?

While the CFTC could appeal the ruling on the motion suggesting mootness, that seems a tad bit unlikely. It seems likely that aside, perhaps, from some minor procedural maneuvering, we are likely to see the decision on the merits as the next major moment in this case.

It is unlikely that we can glean much from this order, as there simply is not much being forecast. However, in terms of actual words, the ruling itself is significant. Oral arguments are still relatively fresh, at least on a federal court of appeals calendar of freshness, meaning while we could get a decision on the merits any day, it’s probably still a few more months away if we are looking at the median time to decisions. If this were a banana it would still be pretty green.

One item to watch in this case will be the Fifth Circuit’s deference to the CFTC. In recent years, there have been a growing number of challenges to the ability of federal agencies to address unanswered questions within statutes.

More about statutes

The view of one group is that if an agency is to do something, the enabling statute must specifically set forth a process for doing so, and if a statute does not, there is an argument being advanced that the administrative agency then does not have the authority to carry out the act.

It has typically been the more conservative judges who have favored the position of more limited agency authority, which could be favorable to the PredictIt plaintiffs, given the conservative lean of this panel. While this may be one tick in the box of the plaintiffs, it is far from dispositive as to how the panel will ultimately rule.

With news that Kalshi has withdrawn its application to offer congressional futures contracts, PredictIt enjoys a near-monopoly of legal election betting markets in the US.