Federal courts in Arkansas and Missouri dealt with a flurry of lawsuits Monday, as Polymarket US, Underdog, Robinhood, and Crypto.com filed for injunctions to protect them against state enforcement of gambling laws.
Polymarket US sued both Arkansas and Missouri, Crypto.com sued Arkansas, and Underdog and Robinhood both sued Missouri.
gov.uscourts.moed_.232719.1.0The Polymarket Arkansas suit was filed in the U.S. District Court for the Western District of Arkansas, while the Crypto.com suit is in the Eastern District. This week’s Missouri lawsuits are all in the U.S. District Court for the Western District of Missouri.
In each case, the prediction markets are seeking injunctions that would prevent the states from enforcing their gambling laws against their businesses.
Follows Arkansas suing Kalshi
The lawsuits follow Arkansas suing Kalshi in state court last week. That appeared to make other prediction markets concerned about the risk of facing similar action in the state, prompting them to sue first in federal court.
gov.uscourts.arwd_.78864.2.0Polymarket said that the Kalshi lawsuit shows “an intent to bring the weight of state regulatory authority against prediction markets like Polymarket US.”
Polymarket argues that the Commodity Exchange Act (CEA) was always intended to preempt state gambling laws because states had previously tried to enforce those laws against traditional commodity futures trading.
In its complaint in Arkansas, Polymarket says: “Arkansas is attempting to relitigate a debate Congress settled over 50 years ago. Back then, too, States treated derivatives trading as unlawful gambling. That is one reason why, in 1974, Congress amended the CEA to grant the CFTC [Commodity Futures Trading Commission] ‘exclusive jurisdiction’ over certain derivatives ‘traded or executed on a contract market designated’ under the Act.”
Polymarket added that facing a statewide ban would cause “irreparable harm.”
“The harm resulting from state enforcement would be irreparable,” the complaint read. “Even a meritless state enforcement action would immediately disrupt Polymarket US’s federally authorized operations, fragment a national market, reduce liquidity, jeopardize critical banking and commercial relationships, undermine user trust, and harm Arkansas residents.”
Missouri sent cease-and-desists
Missouri has not yet sued any prediction markets in state court, but did send out cease-and-desist letters in September.
Underdog-vs.-MissouriThose letters, according to Underdog’s and Robinhood’s court filings, told the exchanges that they could leave the market or obtain a license from the Missouri Gaming Commission. Underdog applied for a Missouri sports betting license in the lead-up to the state legalizing sportsbooks in December last year, but withdrew its application just ahead of the launch date as it prepared to launch prediction markets instead.
Underdog argues that state enforcement would violate the constitution.
“Defendants’ attempt to apply and enforce Missouri’s law is plainly inconsistent with Article VI, Clause 2, of the United States Constitution (“Supremacy Clause”) and any enforcement efforts are therefore preempted,” its complaint said. “The CFTC has also confirmed its position that states’ attempted enforcement of their laws against CFTC-designated contract markets violates the Supremacy Clause in each of the amicus briefs, motions to intervene, emergency orders, and nine litigations it has filed across the country enforcing the CFTC’s exclusive jurisdiction over derivatives trading on DCMs.”
Does new CFTC interpretation complicate things?
The state lawsuits may take on new weight because of a CFTC notice published Thursday that told exchanges to stop geofencing states, or explain why they cannot do so. It is unclear at this stage whether state court orders will be accepted as a reason to geofence – in the past, the CFTC has instructed Kalshi to defy state-court orders.
The potential for CFTC action could change how courts see the balance of harms in issuing or not issuing an injunction.
