The latest legal brief filed by Kalshi continues to highlight that the heart of the case on who has say over sports event contracts is fundamentally going to be a battle of language.
The Third Circuit Court is hearing the appeal from the New Jersey attorney general and New Jersey Division of Gaming Enforcement (DGE) requesting the court overtun the temporary injunction the lower court granted that keeps Kalshi online in the state.
On Thursday, Kalshi filed its response to both the DGE’s argument as well as the various amicus briefs.
Kalshi says NJ and others are cherry picking language
The crux of the filing was that these briefs were looking too closely at one-off parts of the law and omitting other sections of the law to form an argument to cherry pick an outcome that suits them.
The amicus brief from dozens of attorneys general is one that spent ample time on the idea that the language in laws Congress has passed does not clearly abdicate who controls sports-related event contracts.
Kalshi very much disagreed.
“Defendants principally argue that Kalshi’s sports-event contracts are not swaps. But Defendants bury the lede: Congress in the Special Rule expressly contemplated that sports-event contracts may meet the statutory definition of ‘swap.’ Neither extratextual limitations nor canons of construction displace Congress’s clear language,” the brief noted.
The brief also took exception to the industry’s arguments that allowing event contracts that bear a strong resemblance to gambling would fundamentally undermine state-controlled gaming like sports betting.
“Finding preemption will not produce Defendants’ sky-is-falling consequences. It will not mean that the CEA supersedes all state gambling laws. Instead, the CEA preempts state gambling laws only as narrowly applied to trading on DCMs, leaving state law unaffected in every other application, including as to sportsbooks and casinos.”
The brief highlighted language that very clearly notes that the CFTC controls activity on a designated contract markets (DCM) and argued it is very obvious that Congress intended this to be the sole territory of the regulatory body.
Kalshi makes three Special Rule points
1: Rule is two prongs, not one
And, as expected, the brief asserted the way the Special Rule added in Dodd-Frank Act is not to be read as an and/or, but a test that if a contract satisfies both categories, it is prohibited. In Kalshi’s eyes, gambling and assassination attempts are two of six contract topics that must also not be in the public interest in order to be disallowed.
2: Rule is not “must” but “may”
The brief also took exception to another way the defendants read the Special Rule.
“Defendants contend (at 48-49) that no conflict exists because the Special Rule independently prohibits Kalshi’s event contracts. But Defendants misread the Special Rule, which provides that the CFTC ‘may determine’ that contracts involving ‘gaming’ are contrary to the public interest—not that it must,” Kalshi argued.
3: Sporting events aren’t unlawful
And finally, Kalshi said the plaintiffs are getting a third part of the Special Rule wrong. The rule mentions contracts related to “unlawful activities” as one of the six categories of concern for the CFTC.
In its argument, the DGE and others interpreted that to argue that unregulated sports bets being illegal in a given state would fall under the category. Kalshi, unsurprisingly, disagreed about that too, as did the lower court.
“As the district court explained, the only ‘workable’ interpretation of the Special Rule’s reference to ‘unlawful’ activity references the unlawfulness of the underlying event, not the act of staking a financial position on that event’s likelihood. Because sports events are not unlawful in New Jersey, the Special Rule’s unlawful-activity category does not apply,” Kalshi contended.
Oral arguments set for Sept. 8
The brief also briefly touched on the tribal argument that their lands need geolocated out by noting that the scope of the Indian Gaming Regulatory Act (IGRA) does not cover the activity of a DCM.
Now it is Kalshi’s turn to line up its own amicus briefs on the appeal. Groups have until July 31 to submit amicus briefs in support of Kalshi. Then the court will review all of the briefs on both sides in advance of oral arguments on Sept. 8.
