On Tuesday, the Second Circuit denied Kalshi and Coinbase’s requests for injunctions that would have prevented New York and Connecticut from enforcing their state gambling laws against sports event contracts while the prediction market operators appeal.
“Upon due consideration, it is hereby ordered that the motions are denied because Appellants have failed to make the required showing that an injunction pending appeal is warranted,” the court order states.
The order did not go into further detail about what the companies failed to demonstrate. The decision means both states could enforce bans against their sports event contracts.
Ruling covers three appeals
Tuesday’s decision covers three appeals being considered together:
- Kalshi‘s dispute with officials from the New York State Gaming Commission
- Kalshi’s challenge against Connecticut’s Department of Consumer Protection and state officials
- Coinbase’s separate challenge against Connecticut Atty. Gen. William Tong and other state officials
The companies say their sports contracts are swaps covered by the Commodity Exchange Act, putting them under federal Commodity Futures Trading Commission regulation.
New York and Connecticut, like many other states around the country, disagree. They argued that the contracts are essentially sports bets and should be regulated under state gambling laws.
Kalshi, Coinbase awaiting next steps
Sports betting attorney Daniel Wallach called the decision “a major win for both states.” With this denial, the states are now one remand order away from having the lawsuits moved back to state courts and getting a preliminary injunction to block sports contracts, he added.
States like Massachusetts, Michigan and Nevada have already implemented such bans. Ohio and Tennessee could be next given their recent win in the Sixth Circuit.
New York sued Kalshi on July 31, accusing the operator of running an illegal gambling business. The state wants to stop Kalshi from offering sports event contracts without a gaming license and is seeking financial penalties that include forfeiting gains, restitution to consumers, and fines based on its gains.
Kalshi moved the case to federal court, prompting New York to file a motion on Aug. 7 asking for it to be returned to state court.
Connecticut took a similar approach. A lawsuit to stop Kalshi from offering sports event contracts to residents was filed on Aug. 26. Kalshi again moved the case to federal court, and Connecticut filed a motion to have it sent back on Sept. 8.
Prediction market divide continues
U.S. District Judge Analisa Torres ruled against Kalshi in July, rejecting its request for a preliminary injunction. She found that the Commodity Exchange Act did not override the state’s gambling laws as applied to the company’s sports prediction markets. Kalshi then appealed the decision.
In Connecticut, U.S. District Judge Vernon D. Oliver denied Kalshi’s preliminary injunction request in August, concluding that the company’s sports contracts did not qualify as swaps under the CEA and that federal law did not displace Connecticut’s traditional authority over sports wagering. After that, Connecticut filed its own enforcement lawsuit against the operator.
Elsewhere, the Third Circuit previously sided with Kalshi in its dispute with New Jersey, while the Sixth and Ninth Circuits have ruled in favor of state regulators.
The next significant developments in New York and Connecticut could come from the separate remand proceedings, as a decision there could return the enforcement lawsuits to state courts.
