New York Judge Denies Kalshi Injunction, Finds State Gambling Laws Are Not Preempted
Judge says congressional history suggests lawmakers sought to prohibit the types of sports-event contracts offered by Kalshi.
A federal judge has denied Kalshi‘s motion for a preliminary injunction against New York regulators, ruling that the company failed to demonstrate that the Commodity Exchange Act (CEA) preempts the state’s gambling laws as applied to sports-event contracts.
U.S. District Judge Analisa Torres found that all four factors necessary for a preliminary injunction weighed against Kalshi, including likelihood of success on the merits, irreparable harm, the balance of equities, and the public interest.
Judge Finds New York Gambling Laws Are Not Preempted
Judge Torres emphasized that gambling regulation has historically been a matter of state police powers and therefore carries a “presumption against preemption.”
The presumption against preemption, therefore, applies to this case, and the Court must analyze whether Kalshi has demonstrated that in enacting the CEA, it was the ‘clear and manifest purpose of Congress’ to preempt New York’s authority to regulate gambling where a DCM, like Kalshi, offers sports-event contracts on its platform.”
Judge Torres did not rule on whether sports-event contracts constitute swaps under the CEA. She wrote, “The Court assumes without deciding that Kalshi’s sports-event contracts are swaps under the CEA.”
The court, nevertheless, concluded that New York’s gambling laws do not conflict with the CEA. The judge cited decisions from other jurisdictions that have reached differing conclusions on whether sports-event contracts qualify as swaps, underscoring the unsettled nature of the issue.
The opinion also highlighted Section 16 of the CEA, which expressly preempts state gambling laws in certain limited circumstances. The court said those targeted preemption provisions provide “strong evidence” that Congress did not intend the CEA’s grant of exclusive jurisdiction to broadly exclude all state gambling laws from regulating transactions involving swaps.
Judge Says Legislative History Supports Restricting Sports Event Contracts
In addressing Congress’ intent, Judge Torres cited the legislative history of the Dodd-Frank Act’s special rule governing event contracts. She suggested lawmakers sought to prevent the creation of markets resembling sports betting.
The court wrote that the congressional record “supports the view” that, when enacting the special rule, Congress sought to prohibit “the exact types of event contracts that Kalshi seeks to offer.”
In reaching that conclusion, Judge Torres cited Judge Jane Roth’s dissenting opinion in the Third Circuit’s New Jersey case, which argued that Congress intended the special rule to prohibit sports-event contracts resembling gambling products.
To support that conclusion, the judge also cited remarks from former Senator Blanche Lincoln, the then-chair of the Senate Agriculture Committee and a principal architect of the Dodd-Frank derivatives provisions.
Lincoln said the purpose of the special rule was to “prevent the creation of futures and swaps markets that would allow citizens to profit from devastating events.”
She further warned that it would be easy to create event contracts around “the Super Bowl, the Kentucky Derby, and [the] Masters Golf Tournament” that “would not serve any real commercial purpose” and instead “would be used solely for gambling.”
Self-Certification Does Not Make Contracts Lawful
The court also rejected one of Kalshi’s central arguments: because it self-certified its sports contracts and the Commodity Futures Trading Commission (CFTC) did not prohibit them, states cannot intervene.
Judge Torres wrote:
This argument lacks merit and misinterprets the authority of Kalshi’s self-certification of its sports-event contracts.”
The opinion further stated that “its self-certification is not tantamount to a declaration that the contract is lawful.”
The court added:
The agency’s inaction is not proof that the sports-event contracts are regulated by or permissible under the CEA—and the Court has concluded they are not.”
Judge Torres ultimately concluded that:
New York’s gambling laws, which seek to regulate gaming in the state, complement rather than conflict with federal law.”
Court Rejects Compliance and Geolocation Arguments
Another Kalshi argument is that complying with New York law would be impossible. The company has argued that CFTC regulations require federally regulated exchanges to provide nationwide access to their markets, an argument the company has also recently made in Illinois.
The court disagreed.
Judge Torres wrote:
There is nothing preventing Kalshi from obtaining a license pursuant to New York law and establishing a category of New York market participants that does not discriminate within that New York-resident category.”
The court further stated that federal impartial-access requirements “do[] not require DCMs to offer contracts nationwide.” The court also found that the costs associated with geolocating users and complying with state regulations were largely monetary. Therefore, the judge wrote, they are insufficient to constitute irreparable harm.
Litigation Could Shift to Appeals and State Enforcement
Kalshi has already appealed the decision in the Second Circuit.
Gambling attorney Daniel Wallach said on X that the decision could prompt additional enforcement actions by New York regulators. Those include actions seeking restitution, disgorgement, civil penalties and injunctive relief.
Wallach further suggested the opinion may bolster New York’s position in its related litigation involving the CFTC, Coinbase and Gemini. Furthermore, it could potentially strengthen arguments advanced by other states, including Connecticut, that oppose federal preemption of sports-event contracts.
Featured Image: Ken Lund via Wikimedia Commons (license)
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