A federal judge has dismissed Kalshi's request for a preliminary injunction against New York regulators, stating that the company did not prove that the Commodity Exchange Act (CEA) overrides state gambling laws concerning sports-event contracts.
U.S. District Judge Analisa Torres determined that all four criteria necessary for granting a preliminary injunction were unfavorable to Kalshi. These included the likelihood of success on the merits, potential for irreparable harm, the balance of equities, and the public interest.
Judge Torres highlighted that the regulation of gambling has traditionally been under state jurisdiction, which creates a “presumption against preemption.” This means that the court must examine whether Kalshi has shown that Congress intended to preempt New York’s authority to regulate gambling when it enacted the CEA.
While Judge Torres did not make a definitive ruling on whether sports-event contracts are classified as swaps under the CEA, she noted, “The Court assumes without deciding that Kalshi’s sports-event contracts are swaps under the CEA.” Nevertheless, the court concluded that New York's gambling laws do not conflict with the CEA. The judge referenced rulings from other jurisdictions that have differing opinions on whether such contracts qualify as swaps, indicating the complexity of the matter.
The opinion also pointed to Section 16 of the CEA, which specifically preempts state gambling laws in certain limited situations. The court indicated that these targeted preemption provisions offer “strong evidence” that Congress did not intend for the CEA to broadly exclude all state gambling laws from regulating transactions involving swaps.
Regarding Congress’ intent, Judge Torres referred to the legislative history of the Dodd-Frank Act, which contains special rules for event contracts. She suggested that lawmakers aimed to prevent the emergence of markets similar to sports betting.
The court noted that the congressional record “supports the view” that, in establishing the special rule, Congress intended to prohibit “the exact types of event contracts that Kalshi seeks to offer.” To bolster this conclusion, Judge Torres cited a dissenting opinion from Judge Jane Roth in a New Jersey case, which argued that Congress intended the special rule to ban sports-event contracts that resemble gambling products.
Additionally, the judge referenced comments from former Senator Blanche Lincoln, a key figure in crafting the Dodd-Frank derivatives provisions, who stated that the aim of the special rule was to “prevent the creation of futures and swaps markets that would allow citizens to profit from devastating events.” She cautioned that it would be simple to create event contracts around major events like “the Super Bowl, the Kentucky Derby, and [the] Masters Golf Tournament” that “would not serve any real commercial purpose” and would be used solely for gambling.
The court also dismissed one of Kalshi’s main arguments: that because it self-certified its sports contracts and the Commodity Futures Trading Commission (CFTC) did not prohibit them, states should not be able to intervene.