The legal tussle involving Kalshi against state regulators has reached yet another significant stage following the dismissal of the latest legal challenge by the appeals court. The ruling handed down on August 28 was unanimous that Kalshi had failed to prove that Nevada’s rules for sports contracts were likely to violate federal laws on commodities.
Ninth Circuit Rejects Kalshi’s Preemption Theory
Kalshi claimed that federal commodity regulation preempted state law concerning its sports contract business from Nevada’s gaming statutes. Kalshi runs itself as a designated contract market regulated by the CFTC, classifying its contracts as swaps. But the Ninth Circuit concluded that Kalshi’s contracts probably do not fit within the definition because it operates similarly to sports bets.
The court denied Kalshi’s express, conflict, and field preemption claims during the preliminary injunction phase. Circuit Judge Ryan Nelson also stressed that the CFTC is not the national gambling regulatory agency. The decision invalidates an existing injunction that exempted Kalshi from any Nevada enforcement action throughout the legal process. The court also remanded the Nevada election contract dispute to the district court.
Legal Issues for CFTC Rulemaking on Its Own Terms
While addressing the major-questions doctrine, the court declined to render a decision declaring the CFTC’s rulemaking efforts unconstitutional. The court noted that Kalshi’s broad view of federal power could give rise to major-questions issues, but the judges did not determine whether the agency’s proposed rules in the future would infringe upon the doctrine. According to gaming attorney Daniel Wallach, the CFTC rule is facing serious legal challenges after the court’s decision and can become subject to an Administrative Procedure Act lawsuit.
Circuit Split Puts Supreme Court Within Reach
The Ninth Circuit case poses a notable distinction from the Third Circuit ruling supporting Kalshi. This distinction may raise the chances of Supreme Court action, despite the fact that review is not assured. There was a deadline of September 3 for New Jersey to file for further review on the Third Circuit case. Kalshi can also seek Ninth Circuit rehearing or Supreme Court review.
As of now, Nevada will be able to enforce its gaming laws against Kalshi’s sports agreements. The CFTC proposed rules are also still pending at the agency after considering public feedback. So this issue is still ongoing in the federal courts, state agencies, and through federal rulemaking.
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