- ▸ A ruling in the US Third Circuit upheld Kalshi's preliminary injunction, allowing the platform to continue offering markets in New Jersey while the case proceeds.
- ▸ The court ruled ruled that the Commodity Exchange Act gives the CFTC exclusive authority over swaps including prediction markets, limiting state enforcement.
- ▸ New Jersey can appeal, and this case could become a defining national precedent on federal vs. state control of prediction markets.
The US Third Circuit Court of Appeals has delivered a substantial win to online prediction market exchange Kalshi in its dispute with the state of New Jersey. The decision from a three-member panel of judges with the Third Circuit states that the New Jersey Division of Gaming Enforcement (NJDGE) cannot enforce its cease-and-desist order against Kalshi because federal law preempts state regulation of event contracts that qualify as “swaps.”
New Jersey authorities still have appeal options, should they decide to exercise them. For the time being, the ruling is an important signal that state sovereignty over prediction markets, even those that mimic state-regulated sports betting offerings, may not hold up in court.
Third Circuit issues decision on Kalshi’s petition for injunctive relief
The three-member panel representing the Third Circuit issued its opinion on Monday, affirming the district court’s ruling that Kalshi has a reasonable chance of success in its lawsuit against the NJDGE, New Jersey Attorney General Matthew J. Platkin, and others. That lawsuit seeks to establish that the US Commodity Exchange Act (CEA) preempts any New Jersey statute that might restrict or otherwise regulate exchanges of the contracts on Kalshi’s platform.
The panel wrote that the CEA “preempts state laws that directly interfere with swaps traded on” designated contract markets (DCMs) and that the Commodity Futures Trading Commission (CFTC) “has exclusive jurisdiction” to regulate exchanges of that type.
Furthermore, the panel agreed with the district court that Kalshi would suffer irreparable harm in the absence of an injunction. Additionally, the court found that the CEA is comprehensive in regulating prediction markets, leaving no room for state governments to participate in that activity.
As a result, the injunction that the district court issued is upheld. As long as the state is enjoined in this way, it can’t take any action against Kalshi for offering sports-related prediction markets in NJ.
This dispute started back in March 2025 when NJDGE Interim Director Mary Jo Flaherty sent the cease-and-desist order to Kalshi. Kalshi filed suit in the federal district court for New Jersey that same month.
Depending how New Jersey authorities decide to respond, the matter may end up before the US Supreme Court.
Could US Supreme Court appeal be in the cards for New Jersey?
With the panel ruling on the injunction, the defendants in Kalshi v. Flaherty, et al. have a couple of appeal options. They could ask for an en banc review of the panel’s decision on the injunction, which would mean that the full Third Circuit contingent of justices will look at the ruling, then either affirm or overturn it.
From there, the only recourse is the most significant: asking the US Supreme Court for a review. However, New Jersey’s officials may reserve that course of action until lower courts have heard the case on the merits rather than ask for a review of the injunction.
Kalshi v. Flaherty, et al. focuses on the exact question of preemption that the Third panel’s opinion touched on. However, the panel’s ruling is about whether Kalshi has a chance to succeed in that litigation and the injunction is necessary, not whether that argument holds up to scrutiny.
With the trial pending, Kalshi is free to continue to provide its prediction exchange to people in New Jersey. In what could be an ironic twist, it could be a lawsuit involving New Jersey that would establish a national precedent in that direction.
Third panel cites Murphy v. NCAA in ruling
In 2018, the Supreme Court ruling in Murphy v. NCAA opened up the potential regulation of sports wagering to most US states. The panel from the Third Circuit referenced that case in its decision to uphold the district court’s injunction in Kalshi v. Flaherty et al.
For example, the opinion reads that “federal prohibition on sports betting continued until 2018, when the Supreme Court in Murphy v. NCAA held that PASPA’s preemption provision was unconstitutional and without effect. The Court explained that ‘Congress can regulate sports gambling directly, but if it elects not to do so, each State is free to act on its own.’ Congress did not, so states did.” In that section, the panel was addressing the point of distinction that Congress has explicitly given the CFTC the authority to regulate DCMs while it did not designate any agency with oversight of sports wagering.
If Kalshi v. Flaherty is elevated to the Supreme Court and the Supreme Court makes a ruling for the plaintiff, New Jersey could similarly be part and parcel to the firm establishment of federal regulation for prediction markets across the United States. Other possibilities remain, including alternative routes toward the same end.
Other litigation concerning prediction markets across the country
Another federal appellate court, the Fourth Circuit, is considering a similar case between Kalshi and Maryland. However, in that case, Kalshi is appellee, as the trial court ruled in Maryland’s favor.
Robinhood has also sued Washington in federal court, seeking similar injunctive relief as protection after Washington Attorney General Nick Brown sued Kalshi in state court.
On the federal level, the CFTC has also sued officials in Arizona, Connecticut, and Illinois to block enforcement actions in those states against prediction markets. Arizona’s approach has been the most aggressive, with Attorney General Kris Mayes filing criminal charges against Kalshi.
Any of these cases could also produce petitions for review to the Supreme Court in the future, although the SCOTUS is likely to pick one of the petitions on the subject even if it receives multiple requests. With this decision from the Third panel, Kalshi v. Flaherty is one step closer to that possibility.
