Kalshi has filed a motion to dismiss a Wisconsin tribe’s lawsuit against the prediction market, arguing that the tribe has no grounds to sue because it is not a party to a tribal compact.
The Ho-Chunk Nation of Wisconsin sued Kalshi — as well as its partner Robinhood — in August, arguing that the company offered illegal Class III gaming on tribal lands, in violation of the Indian Gaming Regulatory Act (IGRA).
However, Kalshi late on Friday submitted a brief arguing that the complaint should be dismissed, which would effectively throw out the case if supported by the judge, barring appeal.
gov.uscourts.wiwd_.55038.28.0_1Kalshi draws on California decision
The brief outlines many of the same points that convinced a judge earlier this month to allow Kalshi to continue to operate on tribal lands in a lawsuit filed by three California tribes.
gov.uscourts.wiwd_.55038.29.0In fact, Kalshi directly pointed to the similarities between the two cases.
“Plaintiff’s Complaint is substantially similar to the earlier complaint, asserting the same causes of action and borrowing much of its overheated rhetoric,” it said. “At the heart of both complaints is the same flawed theory: that IGRA provides the tribes with a foothold to regulate trading on a derivatives exchange operating from many miles away.”
The tribe had argued that Kalshi violated IGRA by offering sports betting — a form of Class III gaming — on its lands. It pointed to a line in the act that says “Class III gaming activities shall be lawful on Indian lands only if such activities are authorized by” a tribal compact.
However, Kalshi says a tribe can only sue if terms of the compact itself are violated, and argues that this does not apply to its business.
“Section 2710(d)(7)(A)(ii) requires a violation of a provision of a tribal-state compact, which means Congress did not intend to empower tribes or states to sue third parties — rather than each other — under that provision,” Kalshi wrote. “Kalshi is aware of only a single case where a tribe attempted to bring suit under IGRA against a non-tribal third party, who was promptly dropped from the suit after settling with the tribe.”
It added: “The Complaint does not and cannot allege any violation of Plaintiff’s compact with Wisconsin.”
Kalshi says the compact focuses only on what the tribe and the state are required or allowed to do, but says nothing about what a third party such as itself may do.
“Even if Kalshi could somehow breach a contract to which it is not a party, the Complaint — while full of conclusory assertions that Kalshi is violating the compact — points to no actual provision that Kalshi allegedly violated,” Kalshi says. “This stands to reason, because the agreement governs only the conduct of the parties who entered into it — Plaintiff and Wisconsin.”
While Kalshi acknowledged that the compact does not authorize the business to offer Class III gaming on tribal lands, it said “‘unauthorized’ conduct is beyond the scope of the statutory right of action; only violations of a compact trigger it.”
In a footnote, Kalshi further explained how this interpretation of IGRA works. It said it would not mean “no one has the power to sue over unlawful class III gaming activity that does not violate the express terms of a compact.” Rather, it would only be the federal government that has power to sue in this circumstance. Kalshi cited the Supreme Court’s decision in Michigan v. Bay Mills Indian Community, when the court determined that the state cannot sue a tribe for offering gambling that violates IGRA but takes place off tribal lands.
Kalshi: We don’t offer gaming on tribal lands
While Kalshi argued that the court shouldn’t even need to consider whether it offered Class III gaming on tribal lands in order to dismiss the suit, it went on to argue that it did not do so. Again, it made similar arguments to those in the California case, leaning partially on the 2006 Unlawful Internet Gambling Enforcement Act (UIGEA).
Kalshi argued — as it did in the case against the California tribes — that the location of gaming under IGRA related to where it is being offered from, not where it is being accessed by users. The prediction market is incorporated in Delaware and headquartered in New York.
It pointed to previous cases related to online advertising, where ads that were viewed on reservations but offered from elsewhere were not considered to be conducted on tribal lands.
Kalshi argued that while some kinds of gaming available on tribal lands but offered from elsewhere may be illegal, UIGEA shows that contracts offered by a regulated prediction market are not. The prediction market cited the recent California decision, in which a judge determined that “UIGEA, not IGRA, governs the challenged internet gambling,” as it was conducted online.
UIGEA — which allowed the federal government to take action against payment processors for offshore online gambling, rather than specifically making any kinds of gaming illegal — defines a “bet or wager” as specifically excluding contracts offered by a designated contract market regulated by the Commodity Futures Trading Commission (CFTC) — Kalshi’s regulatory status.
“Congress created this regulatory construct against the express backdrop of IGRA, yet declined to make any accommodation in UIGEA for ‘bets or wagers’ that could be ‘initiated’ on Indian lands other than for strictly ‘intratribal’ transactions,” Kalshi said.
Kalshi says swaps argument is irrelevant
The Ho-Chunk Nation also argued that Kalshi should not be able to lean on its CFTC-registered status to legally offer sports event contracts, because it said that these contracts were in violation of the Commodity Exchange Act (CEA) and CFTC regulations.
It argued that sports event contracts were not swaps under the CEA — a kind of financial instrument traditionally used for hedging risk — and therefore should not be treated as a CFTC-regulated product. The argument that sports event contracts are not swaps last month convinced a federal judge to block Crypto.com from offering these contracts in Nevada.
However, Kalshi said the discussion was not relevant for this lawsuit, as even if its contracts were not swaps, the Ho-Chunk would not have standing to sue Kalshi over it.
“The Complaint does not even attempt to explain why Plaintiff would have standing to bring a challenge to Kalshi’s compliance with the CEA or CFTC regulations,” Kalshi said. “Nor does it attempt to explain why any violation of the CEA or CFTC regulations would mean that the CEA does not apply at all, let alone that IGRA should govern instead. That would make no sense.”
Ho-Chunk Nation has until Dec. 19 to respond
The tribe will have until Dec. 19 to submit a brief in response to Kalshi’s motion to dismiss. Kalshi may then reply to that brief by Jan. 1, with a possible decision coming at some point after that.
Kalshi is also engaged in a number of lawsuits against states. In Nevada and New Jersey, the prediction market received injunctions allowing it to keep operating, though the Nevada injunction may now be at risk of dissolution, and the New Jersey decision is being appealed. In Maryland, Kalshi lost its bid for an injunction, but appealed the decision and continues to offer sports contracts in the state. In Massachusetts, Kalshi is being sued in state court, which could prove to be more sympathetic to the state’s arguments.
