A federal judge Monday sent Kalshi and Polymarket’s lawsuits against Nevada Gaming Control Board (NGCB) back down to a state court, but the two prediction markets quickly filed for appeals as they attempt to avoid state-level bans.
Judge Miranda Du of the U.S. District Court for Nevada determined that a state court should hear the NGCB’s attempts to ban both prediction markets from offering sports event contracts in the state.
Polymarket had already received a temporary restraining order (TRO) on Jan. 30, and already blocks access to its contracts in Nevada. Kalshi contracts remain available in all 50 states, but Nevada is pursuing a TRO against it as well, which could force it to block a state for the first time.
Kalshi had tried to prevent authorities in Nevada from taking action against the business by seeking an injunction from the district court. It initially won an injunction, but it was later dissolved. It is currently appealing the dissolution in the U.S. Court of Appeals for the Ninth Circuit, but the Ninth Circuit denied it an administrative stay that would have prevented the state from taking action while the appeal was ongoing.
When that stay was denied, the NGCB quickly took its opportunity to sue Kalshi in state court. Kalshi attempted to have the case moved to federal court, which it hoped would be friendlier to its argument that the federal Commodity Exchange Act (CEA) preempts state law.
However, the federal court issued an order sending the case down to the First Judicial Court of Carson City, the same court that handed Polymarket its TRO. In the First Judicial Court, the NGCB is seeking an immediate — ex parte — TRO, which can be granted without giving Kalshi an opportunity to argue against it.
Given its decision in the Polymarket case, and the fact that Kalshi would not have a chance to submit its own defense first, it seems likely that the First Judicial Court would also hand Kalshi a TRO if given the opportunity to do so.
Both Kalshi arguments rejected
Kalshi had mostly argued that state law was “completely preempted” by the CEA, and that the case should be heard in federal court because of the “federal questions doctrine.”
Both arguments were rejected by the court.
Complete preemption applies when Congress has specifically set out a cause of action — that is, a system where parties can sue in federal court for violations of the law. It must also have intended this cause of action to be the only way to sue for breaches of the law in question. It is generally seen as a higher standard than conflict or field preemption, which have been at the center of most Kalshi-v-state lawsuits.
Kalshi argues that as the CEA gives “exclusive jurisdiction” over designated contract markets to the Commodity Futures Trading Commission (CFTC), state law is completely preempted. However, Du argued that this jurisdiction does not cover Kalshi’s sports contracts, as she said they failed to meet the definition of a “swap” under the CEA, and even if they did, a “savings clause” in the contract makes clear that state courts still have jurisdiction.
Under the federal questions doctrine, federal courts have jurisdiction in cases where a plaintiff’s claim in state court raises an issue of federal law that is substantial, actually disputed, and capable of being resolved in federal court. Federal law being part of an anticipated defense – for example, Kalshi’s argument that the CEA preempts state law – is not enough to satisfy the federal questions doctrine; the federal question must be a substantial part of the plaintiff’s argument, not just the defendant’s.
Kalshi argued that the NGCB brought in federal law because Nevada’s gaming laws say that “except as otherwise provided by law, it is unlawful” to accept wagers “without having first procured, and thereafter maintaining in effect, all federal, state, county, and municipal gaming licenses as required by statute [or] regulation.”
However, Du rejected the prediction market’s arguments. In her opinion, she wrote that the NGCB’s claim was about whether Kalshi had the required state license, and the reference to federal licenses in the law does not change that.
Polymarket’s federal officer claim rejected too
Polymarket also argued that it was acting as a federal officer and therefore the case should be heard by a federal court.
It argued that it acted as “the regulator” with regard to trading on its exchange, and was therefore exercising federal government powers that could only be challenged in federal court.
However, Du wrote that Polymarket’s self-regulation of trading on its own exchange only amounted to compliance with CFTC rules, not acting on behalf of the CFTC.
Kalshi and Polymarket ask for stays
Both Kalshi and Polymarket have said they would appeal and requested stays of enforcement while they do so.
Decisions to remand a case to state court are usually not able to be appealed. However, there is an exception for decisions that are made based on the federal officer statute. Both parties attempted to exercise this right and filed for administrative stays that will last until the Ninth Circuit makes a decision on the appeal.
Kalshi’s appeal comes despite the fact that the federal officer statute was not a significant part of its argument or the court’s opinion in its decision to remand the Kalshi case to state court.
Instead, Kalshi brought this argument up only in order to accuse Nevada of “artful pleading,” or deliberately writing its complaint in a way that dodged federal issues that Kalshi says are inherent to the case. Kalshi argued that the NGCB should have named the CFTC as a defendant, but chose not to do so because the federal officer statute would clearly apply if it did. This was the only part of the opinion in which federal officer removal was brought up.
The court rejected the idea that the CFTC had a “substantial interest” in the case.
Kalshi now says that its motion for removal was “pursuant to” the federal office statute, and therefore that it has a statutory right to appeal to the Ninth Circuit.
It seeks a stay until the Ninth Circuit decides on the appeal.
Will Kalshi ask SCOTUS for emergency relief?
If Kalshi does not receive an administrative stay, it would have few paths to prevent a temporary restraining order from going into effect.
Kalshi is still seeking a regular stay from the Ninth Circuit following its initial lawsuit against the state, though the timing of a decision there is not clear.
It could also go to the Supreme Court and request emergency relief.
An emergency appeal to the Supreme Court is addressed to the single justice responsible for the district — in this case Elena Kagan — who may then either act alone or refer the matter to the full Supreme Court.
The emergency docket moves much faster than a full Supreme Court case. If Kalshi petitioned for a stay of enforcement, the NGCB would get a chance to respond, Kalshi may then reply to the response, and then the court would issue a brief order granting or denying the stay.
A Kalshi spokesperson did not immediately respond to a request for comment.
Kalshi has yet to block a state
If Kalshi is unable to prevent the TRO from going into effect, it would have to block its sports contracts in a state for the first time.
In Maryland, the prediction market failed to win an injunction that would have prevented the state from enforcing a cease-and-desist, but it appealed the decision and continues to offer its full selection of contracts while that appeal is ongoing.
In Massachusetts, Kalshi was sued in state court, and the commonwealth won an injunction to ban its sports contracts in the state. However, Kalshi received a stay from the state appeals court, stopping that injunction from going into force, at least for now.
The prediction market has argued that blocking a single state violates CFTC rules about “impartial access,” though other prediction markets that have limited their sports offerings to certain states have not faced disciplinary action. It has also argued that geofencing is prohibitively expensive.
