Kalshi has obtained another legal victory with the US District Court for the District of Nevada granting its motion for a preliminary injunction against Nevada.
In allowing Kalshi to continue offering event contracts, the court ordered that the Nevada Gaming Control Board is prohibited from pursuing civil or criminal penalties against Kalshi or otherwise attempting to enforce state gambling laws pending the outcome of the case.
The ruling is a big step in the process of offering sports predictions in all 50 US states. Nine state sports betting regulators have taken action by either issuing Kalshi a cease and desist, announcing an investigation or asking the feds to shut it down like Tennessee did this week.
Kalshi satisfies each element needed for relief
Following a review of the parties’ motions and arguments at an oral hearing, the Nevada district court ruled that Kalshi had satisfied each of the elements needed to obtain injunctive relief.
The court held that Kalshi was likely to succeed on the merits of its supremacy clause claim because the court agreed with its position that “the [Commodities Exchange Act] preempts state law due to the [Commodity Futures Trading Commission]’s exclusive jurisdiction over a [designated contract maker], which Kalshi is.”
In doing so, the court highlighted the “plain and unambiguous language” within the CEA that demonstrated express preemption of state regulatory authority, while also discussing the legislative history that showcased Congress’ intent in providing the CFTC with sole regulatory authority over designated exchanges.
As a result, the court determined that Nevada’s regulatory agencies have no jurisdiction to decide whether Kalshi’s event contracts violate state law. This conclusion supports the claims alleged in Kalshi’s complaint.
Kalshi also met the burden of likelihood of irreparable harm on the basis that: (i) Nevada’s demand letter threatened Kalshi with civil and criminal penalties if it did not cease operations within the state’s ordered timeframe, and (ii) Kalshi presented sufficient evidence showing its inability to comply — and the significant harm it would suffer if it did comply — with the state’s demands.
Court: Nevada unlikely to face harm, but Kalshi is
The court stated that the balance of hardships potentially suffered between the parties tipped in Kalshi’s favor due to the company and its officers “facing substantial monetary expenditures, reputational damage, or civil and criminal prosecution based on [Nevada’s] demands that [Nevada] likely cannot make because they are preempted.”
On the other hand, the court determined that Nevada was not likely to face harm if Kalshi was allowed to continue operating in the state because the court believes that Nevada’s attempts to enforce state gambling laws are preempted.
The public interest element was deemed satisfied based on all the factors presented to support: (i) Kalshi’s argument that Nevada lacks authority to regulate Kalshi’s offering of event contracts, and (ii) the harm Kalshi and its users (including those outside Nevada) would potentially suffer if Kalshi were forced to take down and/or reverse purchases of event contracts in the state.
Court leaned on DC District Court ruling
Throughout the order, Nevada’s district court made repeated reference to the seminal ruling issued by the United States District Court for the District of Columbia (Kalshi v. CFTC) that cleared the pathway for Kalshi to offer election-based contracts.
Following its decision that Kalshi is subject to the CFTC’s exclusive jurisdiction due to being a CFTC-designated exchange and the CFTC has failed to disapprove of Kalshi offering sports-related event contracts for the purpose of declaring them illegal under federal law, the Nevada district court further stated:
And because (1) the district court in [Kalshi v. CFTC] found in Kalshi’s favor, (2) the D.C. Circuit denied the CFTC’s request for a stay pending appeal, and (3) the D.C. Circuit has not overturned the district court’s decision as of this date, Kalshi’s election-based contracts are also currently legal under federal law.
What does this mean for Kalshi in other states?
The Nevada district court’s reliance on the DC district court’s decision lends to the belief that New Jersey’s district court will also rely on its factual determinations and findings in issuing a ruling on Kalshi’s motion for preliminary injunction against the New Jersey Department of Gaming Enforcement and its regulatory counterparts.
Within its order, the Nevada district court noted the state gaming control board’s attempts to mention that other states have begun investigating Kalshi’s operations and/or issued their own cease-and-desist orders. However, the court determined this argument only furthered Kalshi’s position in light of the recent legal landscape surrounding its exchange:
…the defendants noted that other States have taken an interest in Kalshi’s contracts and have sent or intend to send Kalshi cease-and-desist letters. But that merely highlights the problem of allowing the States to regulate a national exchange. It raises the possibility that another State would have different rules than not only the CFTC, but other States. Preventing the difficulties that would create is the reason Congress granted the CFTC exclusive jurisdiction over CFTC-designated exchanges.
Kalshi should be expected to cite such language in its reply brief to New Jersey’s opposition to its motion, and it will likely prove difficult for New Jersey (or any other state) to overcome all the factors discussed by the Nevada district court in support of Kalshi’s motion for injunctive relief.
Impact on future state action, CFTC roundtable
By granting Kalshi’s motion for preliminary injunction, the United States District Court of Nevada elected to preserve the “status quo” pertaining to the legality of Kalshi’s event contracts. That means such event contracts are legal under federal law, subject to: (i) the DC Circuit US Court of Appeals overturning the DC district court’s decision following the CFTC’s appeal, or (ii) amendment of the CEA to either create a state exclusion to federal preemption or allow the CFTC further regulatory oversight over Kalshi’s operations.
Specifically, the order states: “To the extent the States or other interested parties object to Kalshi offering sports and election event contracts, they must take that up with the CFTC and Congress. Such policy issues are beyond the jurisdiction of this court.”
New Jersey following in Nevada’s steps would only solidify Kalshi’s stance of not being “necessarily very concerned” about cease-and-desist letters. Though states continue to investigate Kalshi’s markets, the outcome is likely futile without appropriate action taken by the CFTC. Kalshi’s recent victory may result in future states joining and directing their energy toward trying to influence the CFTC to limit Kalshi’s activities.
