Kalshi and Robinhood took different paths on Wednesday to challenge the Ninth Circuit’s ruling against prediction markets, as Kalshi called for the court to hold an en banc hearing to review the decision, while Robinhood reportedly asked the Supreme Court to consider at the case.
The two filings are both reactions to the decision by the Ninth Circuit last month to side with the state of Nevada and deny the prediction market companies an injunction that would have protected them against state enforcement and overturned a sports event contract ban in the state.
The Ninth Circuit’s three-judge panel ruled unanimously that sports event contracts do not meet the definition of a swap, and they therefore are not protected from being banned under state gambling laws.
Kalshi requests larger panel hears case
Kalshi filed for an en banc hearing, in which the Ninth Circuit would review the case again, but this time with a panel of 11 of its 29 judges.
En-bancOne justification for an en banc hearing is if a ruling contradicts a decision from a different appellate court, while an issue being of “exceptional importance” is another factor. Kalshi relied on both of those criteria in making its case that a larger panel of Ninth Circuit judges should hear its case. The U.S. Court of Appeals for the Third Circuit in April ruled in Kalshi’s favor in a similar case against New Jersey.
“Rehearing is necessary because the panel’s decision creates a circuit split on an exceptionally important question of federal preemption based on internally inconsistent reasoning that conflicts with the plain text of the Commodity Exchange Act (CEA),” Kalshi argued.
The prediction market’s petition also flagged a potential inconsistency in the Ninth Circuit’s opinion. The court determined that sports event contracts do not qualify as swaps, because they do not have financial, economic, or commercial consequences. However, it also said that the Commodity Futures Traditing Commission’s (CFTC) “prohibition” on contracts involving gaming — the soon-to-be-replaced rule 40.11 – applies to sports event contracts.
“This reasoning is at war with itself,” Kalshi argues. “It cannot be that Congress both excluded sports-event contracts from the ‘swap’ definition to ensure they are never traded on DCMs and granted the CFTC authority to decide whether those contracts may be traded under the Special Rule.
“Either Kalshi’s contracts are tradable instruments under the CFTC’s exclusive regulatory jurisdiction or they are not.”
The filing went on to add that this central part of the court’s decision is set to become obsolete, as the CFTC plans to implement new rules that would explicitly allow many contracts involving gaming. As a result, Kalshi argued, a new hearing would be necessary.
“Regardless, the panel’s reliance on the current regulatory rule is no answer to the contradiction in its statutory analysis, and it will soon become obsolete,” it said. “The CFTC’s June NPRM [notice of proposed rulemaking] announced that Rule 40.11 will soon be replaced with a detailed framework under which some sports event contracts are likely to be deemed contrary to the public interest, but many others will not.
“Once that new rule is finalized, the panel’s decision will no longer govern because its holding depends on the (erroneous) proposition that Rule 40.11 currently bars all sports-event contracts.”
En Banc request buys Kalshi time
Unlike petitioning the Supreme Court to take the case, a request for an en banc hearing pauses implementation of the appellate court’s decision.
Therefore, Kalshi’s filing at minimum buys it some time to protect it against enforcement from other states covered by the Ninth Circuit. The Ninth Circuit is the largest of the appeals circuits, covering Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington.
Kalshi’s sports contracts are already banned in Nevada and Washington, but the en banc request should make it harder for other states to join them. Holding off a ban in California in particular, as both the most populous state and a state without legal sportsbooks, would likely be particularly important for Kalshi.
Robinhood goes to SCOTUS
Robinhood, meanwhile, took a different path, filing a petition for a writ of certiorari to the Supreme Court – asking the highest court in the U.S. to hear the case, according to lawyer Daniel Wallach.
It takes four out of the nine Supreme Court justices to agree to take on a case. The Rules of the Supreme Court of the United States state it can accept a case if “a state court or a United States court of appeals has decided an important question of federal law that has not been, but should be, settled by this Court.” A split between circuits is a common reason why the Supreme Court takes up cases, but it sometimes prefers to see a split based on final decisions, not injunctions.
New Jersey is also petitioning the Supreme Court to hear its case, having filed its own writ of certiorari last week.
