A federal judge has mandated the return of lawsuits regarding prediction markets Kalshi and Polymarket to the Nevada state court, as both companies appeal to avert enforcement actions that might curtail their operations within the state.
US District Judge Miranda M. Du determined that the issues raised by the Nevada regulators pertain to state law, which necessitates handling by a Nevada court. This ruling transitions the case to the First Judicial District Court in Carson City.
The Nevada Gaming Control Board initiated a civil enforcement action, aiming to halt Kalshi from offering event-based contracts linked to sports outcomes in Nevada without securing a state gaming license.
The state’s complaint claims violations of multiple Nevada gaming statutes and seeks declaratory and injunctive relief to preclude the company’s operations until it adheres to licensing stipulations.
Kalshi subsequently moved the case to federal court, contending that federal jurisdiction applied based on several legal principles.
“The Court concludes that the Board’s assertions are grounded in state law,” Judge Du stated in her decision.
Federal jurisdiction arguments dismissed
Kalshi claimed that the case should remain in federal court due to the prominence of federal law in the matter, referencing the Commodity Exchange Act (CEA) and the jurisdiction of the Commodity Futures Trading Commission (CFTC).
The court dismissed the assertion that the federal question doctrine was applicable. This doctrine posits that federal courts have jurisdiction in cases where a plaintiff’s claim in state court involves a significant, disputed issue of federal law that can be adjudicated in federal court.
According to the ruling, Nevada’s claims primarily focus on whether Kalshi possesses the necessary state license for operation in the jurisdiction.
“The Board can establish a breach of this provision based solely on Kalshi’s lack of a state license,” the ruling specifies.
The court also refuted Kalshi’s assertion that the CEA entirely preempts state gaming regulations.
Judge Du referenced a clause in the federal statute stating that nothing within the provision “shall supersede or limit the jurisdiction conferred on courts of the United States or any State.”
Due to this clause, the court determined that Congress did not mean to completely eliminate state authority in this domain.
Federal officer removal argument dismissed
Kalshi additionally contended that the case should remain in federal court because the CFTC was a necessary party.
The court dismissed this argument, as it found that the claims of the Nevada Gaming Control Board center on Kalshi’s adherence to state gaming laws rather than on the actions of the federal regulator.
“The Board is not endeavoring to enforce Nevada gaming law—or any state law—against the CFTC,” the ruling clarifies.
Consequently, the court concluded that the federal regulator lacks a legal interest that necessitates its involvement in the lawsuit.
Appeals lodged and enforcement action pending
In the wake of the remand ruling, both Kalshi and Polymarket filed for appeals and sought administrative stays while the appeals are under review by the United States Court of Appeals for the Ninth Circuit.
Previously, Polymarket secured a temporary restraining order on January 30 and has already blocked access to its contracts in Nevada.
Kalshi’s contracts remain accessible nationwide, including in Nevada. However, the state is pursuing a temporary restraining order that might force the company to restrict access in the state.
This case is part of a broader set of disputes between prediction market operators and state regulators over whether event contracts associated with sports outcomes are subject to federal derivatives oversight or state gaming law.
If the state court agrees to the restraining order, it would mark the first instance of Kalshi restricting access to its sports contracts in a US state.