Kalshi’s latest lawsuit provided an insight into the platform’s state-level persuasion tactics, as the prediction market revealed it enlisted a former state attorney general and a former deputy attorney general in its efforts to encourage Tennessee to adopt a “wait-and-see approach” to the platform.
Kalshi filed a lawsuit in the U.S. District Court for the Middle District of Tennessee on Friday, and the case appeared on the docket Monday. The lawsuit was filed on the same day that a cease-and-desist was sent to Kalshi by the state’s Sports Wagering Council (SWC). The activity came days after the state’s deputy attorney general said there was nothing to share with Kalshi regarding potential litigation.
Kalshi-TNPolymarket and Crypto.com also received similar letters, but do not appear to have sued at this point.
Kalshi points to ‘Demonstration of Compliance’
The complaint itself repeats many of the same arguments that Kalshi has made in other lawsuits. Kalshi has also sued Nevada, New Jersey, Maryland, Connecticut, New York, and Ohio.
The prediction market’s lawyers argue that Kalshi is subject to the “exclusive jurisdiction” of the Commodity Futures Trading Commission (CFTC), and that state law does not apply as they say it is preempted by the federal Commodity Exchange Act (CEA).
“Once the CFTC designates an entity as a contract market, the CEA gives the CFTC ‘exclusive jurisdiction’ over the derivatives traded on the market,” Kalshi’s lawyers wrote.
The complaint argued that the CFTC had essentially determined that Kalshi’s sports contracts were permissible last year. It said that shortly after Kalshi first filed to offer sports contracts, the CFTC requested a “Demonstration of Compliance” to prove that the contracts were in accordance with its “Core Principles.” After Kalshi sent this demonstration, the CFTC did not take further action.
Kalshi said the CFTC had “since allowed thousands of Kalshi’s sports-event contracts to be listed, traded, and closed, with no hint that the agency views these contracts as falling outside of its jurisdiction.”
In late September, the CFTC wrote in a footnote in a letter to licensed firms that it had not made a decision on whether sports event contracts were permitted by its rules.
Emails show pre-litigation interactions
The filing also includes a number of emails between Tennessee authorities and Kalshi.
The interactions show that Kalshi’s legal team attempted to arrange a meeting with Tennessee authorities before the cease-and-desist was sent out.
These communications were attached in order to demonstrate Kalshi’s attempts to reach an agreement with the state to avoid the state taking action against the business, and therefore to show the need for an injunction while the merits of the lawsuit itself are being considered.
“Kalshi has endeavored in good faith to reach an accommodation with Tennessee. Over the past several months, Kalshi’s counsel has attempted to discuss the matter with the Tennessee AG, to no avail,” the complaint said.
In an email, Robert Cooper – a former Tennessee attorney general who is now a lawyer with Tennessee-based firm Bass, Berry & Sims, which represents Kalshi – asked for “dialogue” with the office he used to lead.
“As you are probably aware, Kalshi is in litigation with a number of other states—including three cases that are in federal Courts of Appeal (3rd, 4th, 9th Circuits),” he wrote. “It is our understanding that Tennessee may be contemplating a related action, and we would appreciate the opportunity to have a dialogue with the AG’s Office before any litigation is filed. Alternatively, if the state is not considering bringing an action, we would appreciate confirmation of that.”
The email continued by noting that Kalshi has had discussions with other states, some of which had decided to refrain from taking action against the prediction market for the time being.
“Kalshi has had productive discussions with authorities in a number of other states, several of which have opted to take a wait-and-see approach as the current litigation plays out.”
In response, Chief Deputy Attorney General Lacey Mace said “I don’t have anything to share with Kalshi at this time.” The email was sent less than three days before the state sent its cease-and–desist letters.
She also mentioned that she had sent a similar email to Andy Cook from Orrick, Herrington & Sutcliffe LLP. Cook was previously chief deputy attorney general for Wisconsin.
As well as Bass, Berry & Sims and Orrick Herrington & Sutcliffe, Kalshi continues to use Milbank as its primary law firm for lawsuits. Milbank’s team filed the Tennessee lawsuit.
‘We will not be staying enforcement’
The communications also suggest that the state still plans on enforcing the cease-and-desist while the court decides on an injunction.
Kalshi-extra-exhibitsMilbank’s Andrew Porter emailed the SWC and attorney general’s office to make it aware that Kalshi was filing a lawsuit, and asked whether the agency would pause enforcement of the cease-and-desist while the lawsuit was pending, or while a decision on an injunction was pending.
Assistant Attorney General Michael N. Wennerlund wrote that the state, “will not be staying enforcement pursuant to your request.”
Given that fact, Goodwin Law partner Andrew Kim, who has followed Kalshi’s various litigations but is not directly involved, said he believed the court may have to make a decision on a temporary restraining order “rather quickly.”
Kalshi’s lawyers argue that the possibility of enforcement could expose the business to “irreparable harm.”
“As a result of Defendants’ threatened conduct described above, there is an imminent threat that Defendants will take action, including, but not limited to, the enforcement of preempted state law threatened by Defendants’ statements, [which] will violate the Supremacy Clause of the U.S. Constitution, and will subject Kalshi and its customers to irreparable harm,” they wrote.
