The state of Tennessee is arguing in a new legal brief that Kalshi has no grounds to sue the state, as the Commodity Exchange Act (CEA) does not lay out a path for the prediction market operator to do so.
The state on Tuesday filed a response to Kalshi’s request for a preliminary injunction that would block the state from enforcing a cease-and-desist letter against the platform.
TN-responseKalshi received a temporary restraining order last week, which means that Tennessee cannot enforce its cease-and-desist until a decision is made on the injunction. The case has moved quickly. The cease-and-desist was issued on Jan. 9, and Kalshi then sued that same day.
Barring a change in schedule, the lawsuit will continue to move quickly. A hearing on the injunction will take place next Monday, Jan. 26.
Tennessee questions if Kalshi is allowed to sue
Most state arguments in lawsuits against Kalshi have focused on the merits of the case, alongside the question of whether issuing or denying an injunction causes “irreparable harm” to either party.
Tennessee’s lawyers made those arguments, but they also argued that Kalshi has no right to sue for an injunction in the first place.
That claim is based on the argument that Kalshi does not have a “cause of action” under which to sue. A cause of action is a specific rule that allows one party to bring a lawsuit.
In its initial complaint to the court, Kalshi cited the Supremacy Clause of the Constitution, which says that federal law overrides conflicting state laws.
However, Tennessee’s lawyers say the Supreme Court ruled in 2015 that the Supremacy Clause “does not create a cause of action.” Instead, it said the clause is a “rule of decision,” meaning it can be used to decide a case if there are rights for it to be heard, but it cannot be used to show that a party has a right to sue in the first place.
The state’s lawyers go on to add that Kalshi cannot lean on an “implied cause of action.” It pointed to a 1992 case in the Court of Appeals for the Sixth Circuit, which ruled that “A plaintiff “only ha[s] a cause of action under a federal statute if the statute’s text provides … one,” meaning there can only be a cause of action if the law establishes a “private right” and a “private remedy.”
The response then addresses whether Kalshi could claim it has an “equity cause of action,” which refers to a right to prevent the government from enforcing an unconstitutional law. However, it says that the Supreme Court determined in 2025 that if a law sets out a specific set of remedies, then those should be used instead. In this case, it would mean that if a state tried to enforce a law that was preempted by the CEA, the CFTC could sue, but an individual exchange like Kalshi could not.
The state’s lawyers went on to point out that Kalshi would still be able to argue state laws are preempted “defensively,” but that it could not use that as an argument to sue for an injunction.
“That is not to say that judicial review is forever precluded,” they said. “It just means that Kalshi must follow the normal rule that federal constitutional rights are ‘invoked defensively in cases arising under other sources of law, or asserted offensively pursuant to an independent cause of action designed for that purpose.’ It would be free to assert preemption as a defense to any Tennessee proceeding.”
State argues sports contracts are not swaps
In terms of the merits of the case, Tennessee’s lawyers brought up two arguments that at this point are familiar to Kalshi’s legal team, with each argument having convinced at least one District Court to deny or dissolve an injunction.
First, Tennessee argued that Kalshi’s sports contracts are not “swaps” under the CEA, and that therefore the CFTC’s exclusive jurisdiction over swaps does not apply to these contracts.
“In order for a sports-event contract to be considered a ‘swap’ under the CEA, the contract must be (a) ‘dependent on the occurrence, nonoccurrence, or extent of the occurrence of an event or contingency’ that is (b) ‘associated with a potential financial, economic, or commercial consequence,’” the state’s lawyers wrote. “Kalshi’s sports-event contracts are neither.”
The state’s lawyers argue that Kalshi’s sports contracts are on the “outcome” of an event, but not on the “occurence” of an event. That distinction convinced the U.S. District Court for the District of Nevada to dissolve an injunction it had previously granted to Kalshi.
The brief also argues that there is no “potential financial, economic, or commercial consequence” associated with Kalshi’s sports contracts.
Tennessee says state law is not preempted
Tennessee’s lawyers then argued that even if Kalshi’s contracts were swaps, and therefore covered in the CEA, the act would still not overrule state wagering laws.
They say that courts must start by presuming that Congress did not preempt state law, “particularly” in cases involving “a field which the States have traditionally occupied,” unless it showed clear intent otherwise.
In this case, the brief says that Congress did not do so. Those arguments convinced the U.S. District Court for the District of Marlyand to deny Kalshi an injunction — and Tuesday convinced a state court in Massachusetts to issue an order banning Kalshi’s sports contracts in the state. That order in Massachusetts is set to go into effect Friday unless Kalshi can obtain a stay of enforcement.
