A federal court in Utah has made a landmark ruling, siding with the state and dismissing Kalshi's assertion that federal law overrides state gambling regulations.
In a significant decision, U.S. District Judge Robert J. Shelby issued a summary judgment on Tuesday, stating that the Commodity Exchange Act (CEA) does not invalidate Utah's anti-gambling laws. This ruling allows the state to enforce its regulations against Kalshi's sports-event contracts, effectively concluding the case.
Kalshi has announced its intention to appeal the ruling, which will bring the matter before the Tenth Circuit Court of Appeals. This court will join several others, including the First, Second, Third, Fourth, Sixth, and Ninth Circuits, that have previously dealt with similar prediction market cases.
Legal expert Daniel Wallach highlighted that this decision marks the first definitive ruling on the merits in the increasing trend of state-level litigation against prediction markets. Earlier federal court rulings in states like Minnesota, Wisconsin, Nevada, Michigan, and New York primarily focused on requests for temporary injunctions rather than final judgments.
As Kalshi prepares for its appeal, the Tenth Circuit will become the seventh out of 13 federal judicial circuits to engage in prediction market litigation, with two more circuits (the 7th and 8th) likely to follow suit soon.
In rejecting Kalshi's arguments for federal preemption, Judge Shelby noted that the CEA neither explicitly nor implicitly undermines Utah's authority to enforce its gambling laws. The court emphasized the historical role of states in regulating gambling and found no evidence that Congress intended to alter this balance when it expanded the CEA through the Dodd-Frank Act.
Utah's Attorney General Derek Brown praised the ruling, stating, “You can’t rebrand illegal gambling as a federal commodity, and today a federal judge agreed with us. Kalshi bet that clever branding would beat Utah law. Kalshi lost and Utah won.”
The ruling also delves into Section 16(e)(2) of the CEA, which outlines the conditions under which federal law may supersede state gaming laws. Kalshi contended that federal law is only superseded by state law in cases of off-exchange transactions, arguing that this provision does not limit the CEA's broader jurisdiction.