- ▸ The CFTC is suing New York (after AZ, CT, IL) to block state restrictions on prediction markets, arguing exclusive federal authority over exchanges.
- ▸ A ruling in the Southern District of New York sets up a near-certain appeal to the US Court of Appeals for the Second Circuit, adding a fifth circuit to the growing patchwork of cases.
- ▸ With multiple circuits weighing in (and potential splits), the odds of a Supreme Court of the United States review increase, as parallel cases (incl. Massachusetts) move through early stages.
Four federal circuit appeals courts have already weighed in, albeit in limited fashion, on the dispute over the classification of prediction markets and state sovereignty. Thanks to a new lawsuit from the United States Commodity Futures Trading Commission (CFTC), there is a clear path for a fifth circuit court to get involved.
The Commission sued New York on Friday, mimicking its earlier actions against three other states in seeking to block those states’ attempts to restrict prediction market exchanges. In a further demonstration that the Commission is monitoring related events across the country, the Commission also intervened in a Massachusetts state court case on Friday.
CFTC lodges complaint against New York
The CFTC’s April 24 complaint in the federal court for the Southern District of New York is prominently identical to complaints lodged in other districts against Arizona, Connecticut, and Illinois. In a statement released Friday, the CFTC asserts that the action against New York builds on those previous filings.
The CFTC is asking the court for declaratory judgments that New York’s attempts to restrict the trading of designated contract markets violate the Supremacy Clause of the US Constitution. Additionally, the CFTC wants the court to enjoin authorities in New York from taking any actions against CFTC-licensed exchanges related to the state’s gambling laws.
The New York State Gaming Commission sent a cease-and-desist order to Kalshi in October and New York Attorney General Letitia James has filed complaints in state court against other exchanges. Those are the actions that preceded and to a great extent prompted the CFTC’s lawsuit.
If the litigation follows a similar path as other disputes, the US Second Circuit Court of Appeals’ involvement seems inevitable.
Appeal to Second Circuit could be in the cards
To date, the US Third, Fourth, Sixth, and Ninth circuit courts of appeal have either issued decisions or appeals are pending before those courts regarding disputes between prediction market exchanges and state governments. In some cases, both are true.
When the district court in the CFTC’s complaint against New York rules on the motion for injunctive relief, that will be the first opportunity for either the CFTC or New York to consider appeal options. The Second Circuit is the first destination for such actions.
Further appeals could come before the Second Circuit once the district court issues a full decision on the merits of the CFTC’s lawsuit regarding the request for declaratory judgments. Naturally, that will be up to the party on the losing end of the ruling.
The more circuit courts that issue rulings on these disputes, the better the chances of those circuits voicing substantially opposing decisions. That situation makes a US Supreme Court review more likely.
In the meantime, the CFTC is maintaining a national presence in taking part in prediction market court battles. A recent filing in Massachusetts reinforces that approach.
CFTC supports Kalshi in Massachusetts case
The CFTC issued another release on Friday sharing that it filed an amicus brief in the ongoing litigation between Kalshi and Massachusetts. The brief supports Kalshi’s prediction markets in the state and reinforces that the CFTC considers itself the sole regulatory body for exchanges like Kalshi.
Massachusetts Attorney General Andrea Joy Campbell initiated the dispute against Kalshi in state court, but Kalshi then countersued in federal court. The federal court remanded Kalshi’s complaint to the state court, though, and that’s where the action is unfolding now.
The escalation of that dispute is likely to rise to the Massachusetts Supreme Court, almost as assuredly as the Second Circuit is to see some form of appeal from the CFTC’s complaint against New York. Both of these cases are in early stages.
