Add Massachusetts to the list of states that have taken issue with sports prediction contracts offered by Kalshi and one of its partners, Robinhood.
Though numerous lawsuits have been filed in various states regarding the legality surrounding Kalshi’s offering of sports-related event contracts, there may be no forum more contentious than Massachusetts, where the state’s attorney general has taken the onus of filing its own lawsuit alleging the company uses its prediction marketplace to offer unlicensed sports wagering in violation of state law. Per the complaint:
“[T]he Commonwealth alleges that Kalshi, one of the largest prediction markets in the country valued at approximately $2 billion, is offering sports wagering under the guise of “event contracts” to Massachusetts residents without the required licensure from the Massachusetts Gaming Commission…. The foregoing unlawful conduct exposes residents of the Commonwealth to a plethora of harms, including but not limited to, the public health risks associated with compulsive gambling—a clinically recognized behavioral addiction—and disastrous financial losses. For these statutory violations, the Commonwealth seeks damages, civil monetary penalties, injunctive relief, attorneys fees and costs, and any other available relief the Court deems proper.”
The press release issued by the AG’s office further echoes the state’s stance on the problems posed by Kalshi’s platform, particularly tied to its alleged lack of safeguards needed to establish and enforce responsible consumer activity.
Robinhood Files Suit Against AG Office
In conjunction with the filing of its complaint in state court, the attorney general’s office filed an Emergency Motion for a Preliminary Injunction, seeking that Kalshi and all other entities “in active concert or participation” with Kalshi, be immediately enjoined from:
- Offering, listing, or otherwise facilitating sports-related event contracts (or any other instrument “functionally similar to sportsbook wagers”) in the state;
- Accepting deposits or other fees in connection with sports-related event contracts from any person located in Massachusetts;
- Advertising, promoting, or soliciting participation in sports-related event contracts from any person located in Massachusetts; and
- Allowing any person located in Massachusetts to create an account on Kalshi’s platform for the purpose of buying or selling sports-related event contracts.
Not only would the aforementioned relief prohibit Kalshi’s operations, but it would also require Robinhood to cease its facilitation of prediction markets – offered directly within the Robinhood app via partnership with Kalshi – as well.
As a result, shortly after the AG’s filing of its complaint, Robinhood commenced its own legal action, seeking to prevent the attorney general (as well as the Massachusetts Gaming Commission) “from enforcing preempted Massachusetts law against Robinhood for its facilitation of transactions involving sports-related event contracts.”
Robinhood’s complaint seeks a permanent injunction and declaratory relief that Massachusetts’ gaming laws do not apply to its transactions involving event contracts traded on a CFTC-designated contract market (such as Kalshi), stating “In light of Massachusetts’s complaint and motion for preliminary injunction filed against Kalshi…and because Robinhood intermediates its customers’ sports-related event contract trades on Kalshi’s exchange, there is a real and imminent threat that Massachusetts will file a similar complaint and motion against Robinhood.”
Kalshi Removes Lawsuit to Federal Court
In response to the Emergency Motion for Preliminary Injunction, on Sept. 15 the Superior Court of the State of Massachusetts (Suffolk County) issued an order setting hearing on the state’s motion on Sept. 22, with Kalshi’s response due beforehand on Sept. 19.
However, on Sept. 16, Kalshi filed a Notice of Removal, shifting the Attorney General’s lawsuit from state court to the United States District Court for the District of Massachusetts and asserting that the federal court is the proper venue to determine the parties’ dispute due to federal-question jurisdiction stemming from the existence of Kalshi’s preemption claims that have been argued in other federal courts. Kalshi states in its notice that Massachusetts cannot avoid the application of federal law – specifically, the Commodity Exchange Act (CEA), the same basis set forth in Robinhood’s complaint – by “artfully pleading” around such issue through simply alleging a violation of state law (especially, considering the emergency motion relies heavily on federal case law to support why Kalshi has no basis to argue that the CEA preempts state law).
Kalshi’s removal of Massachusetts’ complaint to federal court effectively precludes the Superior Court from issuing a ruling on the state’s emergency motion. Instead, the parties’ dispute may shift to battling over whether their competing claims should be determined in state or federal court (where Kalshi has already obtained preliminary injunctive relief in Nevada and New Jersey, but was denied in Maryland).
Alternatively, should the case remain in federal court, the next step will likely include the parties’ establishing a briefing schedule to set forth each’s arguments to determine where Massachusetts falls in the line of states willing to permit Kalshi’s operations pending ultimate resolution on the legality of its platform.
