Washington state is taking steps to send its lawsuit against Kalshi back to state court, following a strategy similar to that of Nevada. This decision comes in light of a recent ruling from the Third Circuit, which could complicate matters.
The state argues that the case should be handled in state court, emphasizing that it is entirely based on state law. Washington contends that Kalshi’s efforts to keep the case in federal court are unfounded.
In its motion, the state asserts that the complaint does not involve any federal claims, does not cite federal law, and does not raise any federal issues. Citing the 'well-pleaded complaint rule,' Washington believes remanding the case to state court is appropriate.
Washington further argues that Kalshi's reliance on federal laws, such as the Commodity Exchange Act (CEA) and the Unlawful Internet Gambling Enforcement Act (UIGEA), is irrelevant at this stage, noting that a federal defense cannot establish federal question jurisdiction.
The filing also disputes Kalshi’s attempt to claim federal officer removal, stating that Kalshi is a private entity and does not meet the criteria for federal jurisdiction under that doctrine.
Washington warns that allowing the case to be removed would upset the delicate balance between federal and state regulations, emphasizing that gambling regulation has traditionally been a state matter.
The state highlights that Kalshi has previously attempted to move similar cases to federal court without success, referencing remand decisions in Massachusetts and Nevada, as well as an ongoing case in Michigan.
The motion to remand builds on Washington’s initial complaint, which characterizes Kalshi's platform as an illegal gambling operation under state law. The state asserts that Kalshi is violating Washington law and profiting from it.
Washington is seeking injunctive relief, civil penalties, and disgorgement, framing the case as both a gambling enforcement action and a consumer protection issue.
This approach mirrors a strategy that has already seen success in Nevada. Earlier this year, a federal judge agreed to remand Nevada's case against Kalshi back to state court, citing similar arguments to those now presented by Washington.
U.S. District Judge Miranda M. Du ruled that Nevada’s lawsuit was based on Kalshi's failure to secure a gaming license in Nevada, rather than its status as a federally regulated exchange. Judge Du also stated that the CEA does not completely override state law and dismissed Kalshi’s claim that the Commodity Futures Trading Commission is a necessary party.
Du's ruling allowed the Nevada Gaming Control Board to seek a preliminary injunction, which the court subsequently granted, effectively preventing Kalshi from offering contracts related to sports, elections, and entertainment events in the state.
However, the legal landscape is shifting, as evidenced by a ruling from the U.S. Court of Appeals for the Third Circuit on April 6, which favored Kalshi in its dispute with New Jersey regulators, upholding a preliminary injunction that prevents state enforcement.