Shortly after receiving the first adverse ruling in any of the current high-profile matters being litigated against state regulators, attorneys for KashiEx LLC (Kalshi) filed to appeal the unfavorable order from the Maryland District Court. On the same day, Kalshi also moved for summary judgment in its Nevada District Court matter, seeking to capitalize on a favorable ruling on its preliminary request for injunctive relief and setting the stage for potential escalation of this question to the US Supreme Court.
The Maryland Court delivered a blow to Kalshi's preemption arguments, ruling that federal commodities law does not strip states of their authority to regulate gambling even when sports wagering, through what Kalshi describes as "sports-event contracts," is conducted through CFTC-approved Designated Contract Markets.
The Court determined that while the Dodd-Frank Act and the Commodity Exchange Act (CEA) did have a clear intention to preempt at least some state laws, that is not where the applicable preemption analysis ends, despite what Kalshi would prefer and in contrast to the New Jersey and Nevada district courts examining the same issue.Instead, the Maryland Court reasoned that it must determine if the "field" Congress intended to occupy through these acts included gambling.
Applying the presumption against preemption in areas of traditional state regulation, the Court found that Congress lacked a "clear and manifest purpose" to preempt state gambling laws when it enacted the Dodd-Frank Act, despite the CEA's general preemptive scope over commodities trading. The analysis focused on several key factors undermining Kalshi's position: the CEA's Special Rule expressly preserving state authority to determine what conduct is unlawful, the express preemption clauses in the CEA not encompassing Kalshi's operations, and Congress showing no intent to override then-existing federal gambling statutes like the Wire Act, Indian Gaming Regulatory Act (IGRA), or Professional and Amateur Sports Protection Act (PASPA) (since struck down but in effect at the time) when drafting the amendments.
The Court also noted that contemporary legislative statements suggested lawmakers viewed sports-event contracts as lacking commercial purpose and were concerned about potential gambling through derivatives markets, and that while the "savings clause" in the CEA's exclusive jurisdiction provision cuts both ways, such ambiguity cuts against finding for field preemption as these types of clauses generally negate an inference that Congress intended to preempt.
The Maryland ruling sets up a potential circuit split as to the preemption issue. While Maryland (Fourth Circuit) ruled in favor of the regulators, district courts in New Jersey (Third Circuit) and Nevada (Ninth Circuit) determined that Kalshi was likely to succeed on the merits of its preemption claim. New Jersey regulators already appealed the ruling to the Third Circuit, where oral arguments are expected to be held in early September.
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