The U.S. Court of Appeals for the Ninth Circuit on Wednesday denied Kalshi’s petition for a panel rehearing and rehearing en banc to reconsider the case, with no judge requesting a vote for full-court review.
The panel unanimously rejected rehearing, according to the decision. Kalshi now has 90 days to file a petition for writ of certiorari with the U.S. Supreme Court.
Kalshi, which is represented by Paul Clement, may seek to coordinate the case with the pending U.S. Court of Appeals for the Third Circuit litigation that has been filed with the high court. However, Clement may seek to delay Supreme Court review long enough for the Commodity Futures Trading Commission (CFTC) rulemaking to become final.
On October 9, the CFTC issued a Notice of Proposed Rulemaking and a companion Interim Final Rule to clarify the jurisdiction of event contracts, including sports-event contracts on prediction markets. Public comments on the proposed rulemaking are due by November 18.
The decision comes amid a growing circuit court split regarding whether federal derivatives regulation under the Dodd-Frank Act and the Commodity Exchange Act (CEA) displaces state and tribal gaming laws for prediction market contracts, especially sports contracts.
Kalshi asked the Ninth Circuit to review its recent ruling upholding a decision to dissolve a preliminary injunction against Nevada gaming regulators, arguing it was a mischaracterization of sports event contracts as sports betting by the three-judge panel
The decision to deny the injunction means Kalshi is no longer protected against state enforcement, and the sports event contract ban remains in place in Nevada. The Ninth Circuit ruled unanimously that sports event contracts do not meet the definition of a swap, and are not protected from being banned under state gambling laws.
In its 78-page petition, Kalshi claimed the Ninth Circuit decision exposed the company to civil and criminal liability even though it is regulated by the CFTC.
Kalshi also claimed a rehearing was necessary because the court’s decision created a circuit split on the question of federal preemption based on internally inconsistent reasoning that conflicts with the CEA.
“The panel held that, although Congress granted the (CFTC) ‘exclusive jurisdiction’ over instruments traded on federally designated contract markets (DCMs), like Kalshi, state may nonetheless regulate sports-event contracts the CFTC has permitted to be traded on Kalshi.”
“As a result, Kalshi now stands exposed to civil and criminal liability, even though it is abiding by federal law and the mandate of its exclusive federal regulator,” the brief reads.
