A U.S. District Court appeared to allow criminal proceedings against Kalshi in Arizona to go ahead by ruling that Kalshi is not allowed to block state proceedings. But the U.S Dept. of Justice (DOJ) and the Commodity Futures Trading Commission (CFTC) swooped in soon before the decision was published, requesting an injunction that’s similar but likely cannot be blocked on the same grounds.
Judge Michael T. Liburdi of the U.S. District Court for the District of Arizona denied Kalshi’s request for an injunction and temporary restraining order (TRO) Wednesday. That injunction and TRO would have blocked the state’s attempt to bring criminal charges against the prediciton market. Arizona Attorney General Kris Mayes filed 20 charges against the prediction market in state court last month.
69544df2-f8d0-4d20-a848-abf74f5e42c4-1Unlike other lawsuits involving Kalshi, the debate in Arizona came down to a law called the Anti-Injunction Act.
That law says parties cannot seek an injunction in federal court to block “ongoing” state court proceedings, unless they qualify for one of three exceptions: the court is “expressly authorized” to do so by Congress, it is issuing the injunction because it is “necessary in aid of its jurisdiction,” or it must do so “to protect or effectuate its judgments.”
Just before Liburdi issued his opinion, the DOJ and CFTC requested a preliminary injunction. While not directly listed as one of the exceptions, precedent from the Ninth Circuit — which is binding for the District Court for Arizona — suggests that injunctions sought by the federal government are exempt from the Anti-Injunction Act.
Order and applicability considered
In court documents, Kalshi spent very little time arguing that it qualified for the exceptions. Instead its main argument was that the Anti-Injunction Act cannot apply because it never asked the court to stop an “ongoing” proceeding in state court.
Instead, Kalshi says it preemptively requested an injunction that would have prevented the state from taking action, and the state filed criminal charges against the business afterwards.
This question of whether the act applies if the federal request for an injunction came before the state court proceedings was central to Liburdi’s decision on whether to grant an injunction.
“Kalshi urges this Court to focus on the date it filed its motion for preliminary relief, when the requested preliminary injunction would operate prospectively to restrain only future enforcement actions, since there were no pending state court proceedings to enjoin,” he wrote.
Liburdi noted that two federal appellate courts, neither of which were binding precedent for the District Court for Arizona, disagreed on how this situation should be approached. In cases that had no connection to prediction markets or gambling, the Fourth and Seventh Circuit Courts previously ruled on cases that involved a federal request for an injunction that was filed before state proceedings began.
The Fourth Circuit found that, “nothing in the Act confines its bar to situations in which the federal plaintiff requests injunctive relief after the state suit has been filed.”
On the other hand, the Seventh Circuit found that allowing the Act to apply after a party requests a federal injunction would give parties “an absolute right to defeat a well-founded motion” and create an “unseemly race to the state courthouse.”
Liburdi determined that the Fourth Circuit’s interpretation was “more faithful to the text of the AIA.” He argued that the text of the law “says nothing about when the state proceedings began.”
Kalshi: State case wouldn’t be blocked
Kalshi also argued that other aspects of the circumstances of the injunction it requested meant that the Anti-Injunction Act should not apply.
In Kalshi’s view, the state court proceedings would not be blocked by the injunction it is requesting, but instead an injunction would mean that any ruling in state court would automatically be preempted by federal law.
In his opinion, Liburdi wrote that, “The precise nature of the relief Kalshi seeks has been the subject of much confusion.”
The judge wrote that it is not clear that the relief Kalshi is asking for would actually be effective. The court will not make a final judgment on whether Arizona is allowed to apply its state laws for many months, so what Kalshi is seeking for now is a preliminary injunction. Liburdi said that this kind of injunction from federal court declaring that state law is preempted would not necessarily bind a state court in the way that a final judgment would.
“If this Court did grant an injunction against prospective enforcement, it is doubtful that the Court’s finding on the likelihood of success on its preemption claim would have preclusive effect in state court,” he wrote.
No future enforcement threat
Liburdi also rejected Kalshi’s argument that it sought an injunction against state officials, not state court proceedings. He said that as it is state officials aiming to prosecute Kalshi in state court, the prediction market is requesting an injunction against both.
“When asked to definitively articulate the requested relief on the record, Kalshi’s counsel confirmed that Kalshi ‘want[s] an injunction that the State . . . cannot prosecute Kalshi,’” he wrote.
The judge added that Kalshi’s argument that it is not blocking “ongoing” state court proceedings is unconvincing, because — now that the state’s criminal charges have been filed — there is no reason to believe that the prediction market is at risk from future proceedings.
“Kalshi has not sufficiently demonstrated that the Court may issue an injunction against future enforcement,” Liburdi wrote. “Kalshi has offered no evidence that the State will commence any further enforcement proceeding beyond the pending criminal prosecution.
Federal government swoops in
The federal government sued Arizona — alongside Illinois and Connecticut — on Friday, arguing that the states were infringing on its jurisdiction by trying to take action against prediction markets. In the District Court for Arizona, the federal government’s case against the state was combined with Kalshi’s lawsuit.
However, Liburdi noted that the court was considering Kalshi’s request, not the federal government’s. The federal government had initially only requested a permanent injunction, which would come after a full trial on the merits, and had not asked for preliminary relief.
“Although the basis for granting Kalshi preliminary injunctive relief would be largely identical to the basis for granting a permanent injunction, the federal government has not yet requested the preliminary relief that this Court is assessing,” Liburdi wrote.
But that changed in between the time that the opinion was written and its appearance on the court docket.
The federal government’s request mostly made similar arguments to those made by Kalshi in Arizona and in other states. It argues that state gambling laws are preempted by the federal Commodity Exchange Act (CEA), and that the Commodity Futures Trading Commission has “exclusive jurisdiction” over trading on regulated exchanges.
gov.uscourts.azd_.1483385.49.0The request pointed to the history of states attempting to regulate traditional commodity futures as gambling, in an efffort to show that the CEA was always intended to overrule state gambling laws.
“Because the CEA preempts the application of Arizona gambling laws to CFTC-regulated markets and market participants, this Court should halt Arizona’s increasingly aggressive enforcement of its inapplicable laws against DCMs by entering a temporary restraining order and a preliminary injunction,” it said.
The federal government’s request for an injunction will almost certainly not be thrown out on Anti-Injunction Act grounds, but that doesn’t mean that the court will grant it. Liburdi will consider the merits of the case and the potential harms to each party from granting or denying an injunction. District courts in other states have been divided on whether Kalshi or the states are correct.
A 2025 Supreme Court case, Loper Bright Enterprises v. Raimondo, means that courts generally don’t defer to federal bodies in interpreting ambiguous laws.
Arizona only state filing criminal charges
It remains to be seen whether other states will attempt to invoke the Anti-Injunction Act, and whether the federal government will call for preliminary relief in those states in order to limit its applicability.
Arizona is the only state that has filed criminal charges against Kalshi. However, the Anti-Injunction Act could apply even if there are civil charges, and so may become relevant in other states too, particularly if states believe it still appies even if Kalshi sues for an injunction first.
Notably, the Ninth Circuit has ruled that the Act “does not apply to injunctions issued at the request of the United States or administrative agencies enforcing applicable federal law.” That opinion would be binding precedent for the District Court for Airzona.
The court also considered whether to deny Kalshi’s injunction due to a doctrine called Younger abstention, which similarly prevents federal courts from blocking state cases. Younger applies if the state proceedings are criminal, or civil proceedings deemed similar to criminal ones, and concern an important state interest.
However, Younger cannot apply if the federal government is a party in the lawsuit, so Liburdi noted that when the federal government sued Arizona, it made this argument irrelevant.
Up-and-down week for Kalshi legal team
Kalshi has swung back and forth between wins and losses in the courtroom lately.
On Friday, a state court in Nevada extended its ban on the platform’s sports event contracts as the prediction market and the state work out terms of an injunction that could force Kalshi to geofence its sports contracts in Nevada.
But Monday, the U.S. Court of Appeals for the Third Circuit granted Kalshi’s request for an injunction that bans New Jersey from enforcing its gambling laws against the business, in the first appellate court ruling on sports event contracts.
