Another US District Court has granted a preliminary injunction that allows Kalshi to continue offering sports predictions as the case plays out.
On the heels of legal victory in Nevada, the ruling from the US District Court for the District of New Jersey’s decision allows Kalshi to continue offering sports-event related contracts in the state.
Similarly to Nevada, the New Jersey court determined that Kalshi satisfied each of the elements needed to obtain injunctive relief and maintain the “status quo” pending further resolution of the issues at play between the offering of event contracts and sports wagering.
Nevada and DC provide precedent
The District Court of New Jersey made repeated reference to the legal rulings provided by the District Court of Nevada (Kalshi v. Hendrix) and US District Court for the District of Columbia (Kalshi v. CFTC) to support its reasoning for granting Kalshi’s motion.
Specifically, the New Jersey court agreed that Kalshi had demonstrated a reasonable chance of prevailing on its claim that the Commodity Futures Trading Commission’s jurisdiction over designated exchanges preempts both the New Jersey Constitution and the New Jersey Department of Gaming Enforcement’s attempt to apply the state’s Sports Wagering Act to its exchange.
The New Jersey court agreed with the Nevada court’s reading of the Commodities Exchange Act for the purpose of holding that the CFTC has exclusive jurisdiction over designated exchanges and finding that at least field preemption over state law exists.
‘Special Rule’ leaves regulation up to CFTC
The New Jersey court agreed with the DC court’s interpretation of the CEA’s “Special Rule” that allows the CFTC to determine that an event contract is contrary to the public interest if it involves either unlawful activity under federal or state law, or gaming. An event contract is only unlawful if the underlying event itself is illegal, and even if one of its products is gaming, it would only trigger a review by the CFTC, not state gaming regulators.
Additionally, the New Jersey court relied on the decision provided in Kalshi v. Hendrix to hold that Kalshi established likelihood of irreparable harm, particularly due to potential harm to the company’s reputation and goodwill upon forced compliance, and also the fact that the state’s issuance of a cease-and-desist letter caused a partner (Robinhood) to decline to list event contracts in the state.
Because Kalshi was found likely to succeed on the merits of its supremacy clause claim, the court further concluded that the balance of interests between the parties favored granting injunctive relief.
New Jersey provides new arguments
New Jersey attempted to differentiate itself from its previous counterparts by arguing that Kalshi’s sports-related event contracts do not fall within the CFTC’s exclusive jurisdiction because “sporting events are without potential financial, economic, or commercial consequence.”
However, the court disagreed with this position and highlighted the examples provided by Kalshi as demonstrating the economic impact of sporting events on television, advertising, and local communities.
Legal victory in other states next?
Kalshi has filed a third lawsuit against the Maryland Lottery and Gaming Control Commission, also seeking injunctive and declaratory relief on the same grounds raised in Nevada and New Jersey.
Maryland’s response to Kalshi’s motion for preliminary injunction is due May 9, and Kalshi’s reply is due on May 19. A hearing on the motion will be heard on May 29.
As Kalshi has already obtained preliminary injunction in the other states in which it has filed legal action, it is difficult to imagine that a third court will stray from maintaining the “status quo.”
Furthermore, while the Ohio Casino Control Commission extended its deadline for Kalshi to cease operations to May 15, it is likely that — should no resolution be met by such time — Kalshi will rely on its growing portfolio of courthouse victories to seek judicial relief in the state pending further action as deemed appropriate based upon current judicial interpretation of the CEA.
Can the CFTC step in?
As in Nevada, the US District Court of New Jersey court order ultimately determined that Kalshi’s sports-related event contracts are likely to be deemed permissible at this current stage of proceedings because the CFTC has failed to take action against them.
The special rule for event contracts states that no agreement, contract, or transaction determined by the CFTC to be contrary to the public interest may be made available on a registered market. Kalshi’s sports-related event contracts evidence by their very existence the CFTC’s exercise of its discretion and implicit decision to permit them.
To date, three courts have recognized that only the CFTC has the authority to review and allow Kalshi’s event contracts. Per the CEA and unless otherwise extended, the CFTC must make a determination and take final action within 90 days of certification. Kalshi self-certified its offering of sports-related event contracts on Jan. 24, placing the initial deadline for the CFTC to take action as April 24. The order notes that as of the date provided, “The CFTC has not reviewed or prohibited Kalshi’s sports-related contracts despite possessing the authority to do so.”
However, both the Nevada and New Jersey decisions rely on the extent of the CFTC’s authority that is currently the subject of debate with the DC Circuit US Court of Appeals. If the DC Circuit US Court of Appeals upholds the DC district court’s decision that the special rule is not implicated, then no such authority may actually exist with the CFTC.
Roundtable canceled
The CFTC recently announced the cancellation of its highly anticipated roundtable, probably with such understanding in mind. And with the state of flux the CFTC currently finds itself in, it would appear the commission is in no position to engage in a significant rulemaking process at this time.
Thus, any further action at the state or federal level regarding the offering of Kalshi’s sports-related event contracts appears to hang in the balance on the outcome of the CTFC’s ongoing appeal.
