More bonkers stuff..
Another state is turning to its own court system to try to stop prediction markets.
Rhode Island Attorney General Peter Neronha announced on Thursday that his office was bringing a lawsuit against Kalshi and Polymarket in Rhode Island Superior Court. The AG is “asking for a declaration that Kalshi’s and Polymarket’s sports-related ‘event contracts’ amount to sports betting that is subject to Rhode Island state gambling laws.”
That lawsuit came after Kalshi sued the state earlier in the day, trying to stop enforcement actions in the state.
More from a press release:
“There is no substantive difference between sports betting and ‘events contracts’ in this context; Kalshi and Polymarket know that, and we know that,” said Attorney General Neronha. “The problem here is that Rhode Island State law heavily regulates gambling, for good reason, and we allege that Kalshi and Polymarket are evading our laws. And Rhode Islanders are losing out. While these private companies continue to profit exponentially off hard-working people, the State’s third largest revenue stream is detrimentally affected, which means less money to fund critical parts of programs that serve Rhode Islanders every day. Further, we allege that these platforms offer those susceptible to problem gambling unfettered access, increasing the potential for the devastating effects of gambling addiction. We demand Kalshi and Polymarket stand down, abide by our state laws, and disgorge their profits, and this lawsuit is the first step towards that goal. …”
The complaint seeks a declaration that Kalshi’s and Polymarket’s offering of sports-related “events contracts” on “prediction markets” are (1) “gambling” that is subject to the constitutional voter referendum requirement; as well as (2) “casino gaming” and (3) “online sports wagering,” which are subject to Rhode Island State Lottery’s (RILOT) regulation and operational control. The Office also seeks a permanent injunction against Kalshi’s and Polymarket’s offering sports-related event contracts on prediction markets as well as restitution and disgorgement.
You can see the complaint here. Rhode Island joins Nevada, Arizona, Washington, Massachusetts and Michigan among the states that have taken state-level legal action aimed at reining in prediction markets.
More on the dueling lawsuits from Rhode Island Current: “Neronha’s complaint against the two prediction market giants was filed in Providence County Superior Court right around 4 p.m. But Kalshi beat him to it a few hours earlier. The New York-based company filed a federal lawsuit against the state at exactly 12:03 p.m. in U.S. District Court in Rhode Island seeking to maintain its ability to sell event-based contracts allowing users to place bets on anything from the World Cup to natural disasters to political contests and the war in Iran.”
Before the rest of the roundup, more legal wrangling about whether states can take prediction markets to court at the state-level:
A panel of Ninth Circuit judges denied stays pending appeal in three related prediction market cases involving Kalshi, Polymarket, Nevada and Washington.
The news means state-court litigation in Washington and Nevada may be able to move forward. It’s also possible (likely?) that the Commodity Futures Trading Commission gets involved with its own lawsuits. If it sounds like a mess, it is!
Nevada and Washington are two of a number of states that have been trying to stop prediction markets from operating within their borders and that are engaged in federal litigation.
A case involving Kalshi and Arizona — which is attempting to bring criminal charges against Kalshi — is also in the Ninth Circuit.
The language in the three orders is similar. Here’s the text of the order in Nevada v. Kalshi:
KalshiEX LLC’s motion for a stay pending appeal is denied. The four discretionary stay factors courts weigh are “(1) whether the stay applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies.” Nken v. Holder, 556 U.S. 418, 434 (2009) (citation omitted). The first two factors are the most critical.
Kalshi has not made a “strong showing that [it] is likely to succeed on the merits” of its argument that this court has federal question jurisdiction. Although Nevada law makes it unlawful to operate a sports pool without the required “federal, state, county, and municipal gaming licenses or registrations,” Nevada only challenges Kalshi’s lack of a state license, and thus its complaint does not trigger federal question jurisdiction.
The court agreed with the district court that “law” as used in Nevada’s gaming statute refers to Nevada state law. Kalshi’s argument that the Commodity Exchange Act preempts Nevada gaming law is an affirmative defense, which cannot by itself give rise to federal question jurisdiction, “even if both parties concede that the federal defense is the only question truly at issue.” Caterpillar Inc. v. Williams, 482 U.S. 386, 393 (1987).
Kalshi’s alternative argument that Nevada was required to join the Commodity Futures Trading Commission as a necessary party similarly fails. The court said the CFTC does not have a legal interest in the action. As a result, Kalshi has not shown it is likely to succeed on the merits.
As for the other factors, litigating in state court does not pose irreparable harm to Kalshi. Having to litigate the enforcement action in state court rather than federal court is not necessarily a harm, let alone irreparable. And the balance of equities and public interest do not favor Kalshi either. Principles of federalism and comity tip the balance of hardships and public interest in favor of allowing Nevada an opportunity to enforce its laws in state court.
For those reasons, Kalshi’s motion for a stay pending appeal is denied.
The court also denied Nevada’s motion to dismiss the appeal for lack of jurisdiction. Because Kalshi sufficiently invoked the federal-officer removal statute as a basis for removal, even if it was not the linchpin of Kalshi’s removal strategy, the Ninth Circuit said it has jurisdiction to consider the district court’s remand order.
Here are the orders:
