Second Circuit Backs New York, Connecticut Against Kalshi, Coinbase
A federal appeals court has refused to shield Kalshi and Coinbase's sports event contracts from New York and Connecticut gambling enforcement during their appeal.
The Second Circuit Court of Appeals has denied requests from Kalshi and Coinbase for injunctions that would have stopped New York and Connecticut enforcing their gambling laws against sports event contracts while the prediction market operators pursue their appeals.
Tuesday's order, reported by Legal Sports Report, states that the court found the companies had "failed to make the required showing that an injunction pending appeal is warranted," without elaborating on what evidence was missing.
The ruling leaves both states free to enforce bans on sports event contracts offered by the two companies.
Three separate appeals were considered together: Kalshi's dispute with the New York State Gaming Commission, Kalshi's challenge to Connecticut's Department of Consumer Protection, and a separate action brought by Coinbase against Connecticut Attorney General William Tong and other state officials.
Kalshi and Coinbase maintain that their sports contracts are swaps under the Commodity Exchange Act and therefore fall under the jurisdiction of the Commodity Futures Trading Commission rather than state gambling regulators. New York and Connecticut argue the products are effectively sports bets subject to state licensing law.
Sports betting attorney Daniel Wallach described the outcome as "a major win for both states," according to Legal Sports Report, and said a single further remand order would be enough to send the enforcement lawsuits back to state courts, where preliminary injunctions could then be sought to block the contracts outright.
Massachusetts, Michigan and Nevada have already imposed such bans. Legal Sports Report noted that Ohio and Tennessee could follow after a recent ruling in their favour from the Sixth Circuit.
New York first sued Kalshi on 31 July, accusing the operator of running an unlicensed gambling business and seeking forfeiture of gains, consumer restitution and fines. Kalshi had the matter removed to federal court, which led New York to lodge a motion on 7 August seeking its return to state jurisdiction.
Connecticut followed a similar path, filing suit on 26 August to stop Kalshi offering sports event contracts to residents. Kalshi once more shifted the dispute into the federal system, and Connecticut responded on 8 September with its own bid to have the case sent back.
US District Judge Analisa Torres had already ruled against Kalshi in New York in July, rejecting its bid for a preliminary injunction on the grounds that the Commodity Exchange Act does not override state gambling law as applied to its sports markets.
In Connecticut, US District Judge Vernon D. Oliver reached a similar conclusion in August, denying Kalshi's injunction request and finding that its sports contracts do not qualify as swaps under the Commodity Exchange Act and that federal law does not displace the state's authority over sports wagering. Connecticut subsequently filed its enforcement lawsuit against the company.
The appellate picture remains split nationally. New Jersey's courts produced a win for Kalshi at the Third Circuit, whereas state regulators prevailed before both the Sixth Circuit and the Ninth Circuit.
Legal Sports Report reported that the next significant developments in New York and Connecticut are likely to come from the separate remand proceedings, which could determine whether the enforcement cases return to state courts.