- ▸ Sixth Circuit denied Kalshi’s stay, allowing Ohio regulators to move forward with penalties, including a proposed $5M fine.
- ▸ The appeal is expedited, but the court’s language signals a potentially tough path for Kalshi on preemption.
- ▸ Diverging rulings between circuits could set up a broader federal showdown over prediction markets vs. state gaming laws.
Kalshi will get its day in court at the Sixth Circuit to argue against Ohio officials’ attempts to enforce state gambling laws against its prediction market exchange. Kalshi’s petition for the court to afford its exchange some protection from those enforcement attempts until the Sixth rules in that case has failed, however.
The Sixth denied Kalshi’s motion for a stay pending appeal on Friday, clearing the way for Ohio Attorney General David Yost and the Ohio Casino Control Commission to pursue civil and criminal penalties against Kalshi for now. The content of the denial of Kalshi’s plea foreshadows a less than ideal venue for the exchange in court.
Sixth panel denies Kalshi’s motion for injunctive relief
On April 24, a three-member panel of the federal Sixth Circuit Court of Appeals rejected Kalshi’s request for a stay of any enforcement actions against itself taken by Ohio officials but did order an expedited calendar for Kalshi’s appeal of its lawsuit against several of those officials. In its ruling, the panel acknowledged that Kalshi’s lawsuit against Ohio “raised serious questions on the merits” and also “do not dispute that Kalshi will suffer irreparable harm without an injunction.”
For those reasons, the panel gave instructions that extensions of filing deadlines in Kalshi v. Matthew Schuler et al. are to be granted only in the case of extraordinary circumstances and the case is to be put before a merits panel at the earliest possibility. For Kalshi, though, the expedited timeline of the hearing of its appeal is a procedural win with limited immediate benefit.
The panel also determined that “Kalshi has failed to show enough at this stage for us to grant an injunction during the time that this appeal takes to complete.” The order states that the harm that the state of Ohio could suffer from such an injunction outweighs Kalshi’s interest as well.
With injunctive relief not forthcoming for Kalshi, officials like Matthew Schuler (the executive director of the Ohio Casino Control Commission) and Yost can move forward with their already announced plans to restrict Kalshi’s operations in Ohio.
Gambling regulators already announced fine recommendation
On April 14, the Ohio Casino Control Commission (OCCC) announced that it recommended law enforcement in the state levy a $5 million fine against Kalshi for violations of the state’s gambling laws. Yost shared the release on the same day and shared the OCCC’s stance that prediction markets “are unlawful gaming.”
Now that Kalshi’s petition to the Sixth Circuit for injunctive relief has failed, Yost could move forward with imposing the fine or similar penalties. Kalshi does have options remaining, though.
Kalshi could ask for an en banc review of the panel’s decision to deny the stay pending appeal from the entire Sixth or ask the United States Supreme Court for a review. The timing could be an issue, though, with either of those options.
Given that the panel has ordered the clerk to expedite Kalshi’s appeal of its lawsuit, the time it would take for an en banc review or for the US Supreme Court to grant cert may not be sufficient to affect any meaningful relief before the appeal proceedings begin. At the same time, the pending appeal of Kalshi v. Schuler et al. may be why Yost doesn’t rush to formalize sanctions.
Tea leaves in the stay denial aren’t a friendly forecast for Kalshi
The crux of Kalshi’s arguments against its prediction markets being subject to state gambling laws is that they are not gambling products but rather “swaps” under federal law. Kalshi has frequently pointed to the US Commodity Exchange Act (CEA) as making the Commodities Future Trading Commission (CFTC) the sole regulatory body for its exchange, barring any enforcement from state governments.
The panel in its denial of Kalshi’s request for a stay found “the issues in the appeal close,” meaning that they are important questions that indeed merit further deliberation. However, a lot of the other language in the order suggests that Kalshi’s appeal doesn’t seem to be a slam-dunk reversal of the district court’s March 9th decision favoring Ohio.
The panel bluntly stated that, “we therefore must begin with the presumption that Congress did not mean to preempt ‘Ohio’s historic police powers’ unless the Commodity Exchange Act discloses that as ‘the clear and manifest purpose of Congress.’” In essence, the panel wrote that preemption of state laws must be explicit in federal law in this context.
Should the merits panel uphold the district court’s decision, Kalshi would have the same en banc and US Supreme Court appeal options. This court could play a pivotal role in setting up oral arguments before the Supreme Court.
Third and Sixth circuits could deliver pivotal split
As the panel referred to in its order, the US Circuit Court of Appeals has granted Kalshi injunctive relief against New Jersey similar to what it sought against Ohio. However, the Third hasn’t heard New Jersey’s appeal of Kalshi’s lawsuit against the state on the merits either.
Should the decisions to deny and grant injunctions in these two circuits prove to be foreshadowing of the rulings on the merits of the cases, that would create a circuit split on issues like whether the CEA preempts state gaming laws as they pertain to event contracts.
That’s typically a crucial component for the US Supreme Court granting cert to review a case. Given the content of the denial of Kalshi’s motion for a stay pending appeal, the Sixth Circuit may provide the part of a split favoring a state government over Kalshi. For the moment, Ohio officials need to gauge whether they are confident enough in their existing legal ground to actually impose penalties against Kalshi.
