Another judge has told Kalshi it needs to shut down operations in a state, at least temporarily.
Suffolk County Civil Court Judge Christopher Barry-Smith ruled against Kalshi, granting Massachusetts Attorney General Andrea Campbell’s request for a preliminary injunction to offline the event contract site while the state’s lawsuit against the firm moves forward.
Campbell and the Massachusetts Gaming Commission (MGC) first sued Kalshi in September, alleging in state court that the site was running afoul of state sports betting laws. Kalshi tried to remand the case to federal court, but lost.
Kalshi attempted to argue that an injunction would devastate the site’s financial ecosystem, but Barry-Smith was not persuaded. Moreover, he believes Massachusetts has a strong chance of winning the case.
“The Commission appreciates the efforts of Attorney General Campbell and the Office of the Attorney General to enforce Massachusetts gaming laws and is thankful for the recent ruling – we are hopeful this issue can be settled soon. The MGC reminds Massachusetts residents that the safest place to wager, if they choose to do so, is with a legal regulated operator,” MGC Chair Jordan Maynard told SBC Americas.
“The Court has made clear that any company that wants to be in the sports gaming business in Massachusetts must play by our rules – no exceptions,” added Campbell in a statement. “Today’s victory marks a major step toward fortifying Massachusetts’ gambling laws and mitigating the significant public health consequences that come with unregulated gambling.”
Judge says CEA not designed to preempt state gaming laws
Kalshi has consistently argued that the Commodity Exchange Act (CEA) preempts all other laws when it comes to the regulation of swaps and derivatives. Barry-Smith noted he was assuming the sports contracts on Kalshi qualify as swaps, but didn’t interrogate arguments that they are not. He concluded that the language of the CEA, which references state laws in both the original text and the Special Rule, by virtue of acknowledging gambling, indicated Congressional intent for the law to work in tandem with state laws, not to supersede it.
“Although I agree that the exclusive jurisdiction provision evidences an intent to preempt some state law, I disagree that it extends as far as state gaming laws,” the judge wrote. “While it would make sense for Congress to displace a state’s targeted attempt to regulate a derivative market, for example, or to clarify the roles of separate federal agencies, as addressed in Merrill Lynch, that logic does not suggest Congress intended to displace traditional state police powers, such as gambling regulation — particularly in the absence of the express language so stating.”
He also argued that there is nothing in what Massachusetts is asking that would prohibit Kalshi from offering sports contracts in the state. Should the company seek licensure from the MGC and follow the state rules around sports wagers, Barry-Smith suggested that there is no reason why the contracts could not be available and satisfy the requirements of both the CEA and state laws.
“That both systems may operate in harmony demonstrates a lack of frustration against Congress’s intent,” he added.
Judge says Kalshi assumed risk by wading into gambling
Though it was not foundational to his ruling, Barry-Smith did notice how the ways in which Kalshi was presenting its product, in his mind, were similar to gambling.
“The manner in which Kalshi’s contracts are offered mirrors other digital gambling experiences, including through continuous feedback and engagement loops that are modeled after operant conditioning and slot machine dynamics, leaderboard rankings and countdown clocks.”
Barry-Smith also concluded it was in the public interest to take Kalshi offline in the state while the case proceeds. Even though Kalshi argued strongly that the site would potentially fail if forced to leave the state, the ruling noted that any injunction would only be enforceable for future action, not existing contracts.
Barry-Smith also placed the blame squarely on Kalshi’s shoulders regarding the potential harm it might face. He referenced the October memo from the Commodity Futures Trading Commission (CFTC) warning event contract providers to have a contingency plan if asked to leave a state via court ruling. He was also very clear that Kalshi should have seen such a possibility coming.
“Kalshi knowingly proceeded in Massachusetts and other states that require sports wagering entities to be licensed, even after the CFTC warned it to be cautious in light of ongoing state enforcement efforts. Thus, any hardship it faces in removing its non-compliant Massachusetts offerings is of its own making. There can be little question that Kalshi well understood that its business model–especially once it began offering bets on sporting events–came into direct conflict with state enforcement regimes; Kalshi chose to take that risk head-on.”
Kalshi could seek stay to delay state exit
Massachusetts has until Jan. 21 to recommend a preliminary injunction plan. Kalshi can potentially seek a stay on the ruling, action it has pursued in other states, such as Nevada.
Kalshi is seeking relief from the Ninth Circuit Court to delay enforcement of Nevada District Court Judge Andrew Gordon’s ruling dissolving the previous preliminary injunction he granted the company, in turn forcing Kalshi to geofence Nevada out of its offerings. While competitor Crypto.com exited the state following a similar ruling, Kalshi continues to fight and remains operational in all 50 states.
While the battle between Kalshi and Nevada gaming regulators is taking place at the federal level, the Nevada Gaming Control Board has gone on the offensive against event contract firm Polymarket and filed suit against them in Nevada state court.
