Washington Judge Rejects Kalshi’s Federal Defense, Grants State Injunction

A Washington state judge has granted a preliminary injunction against Kalshi, a federally registered prediction market exchange, after ruling that state gambling laws are not preempted by federal commodities law.

The decision by King County Superior Court Judge John McHale advances a lawsuit filed in March by Washington Attorney General Nick Brown, who accused Kalshi of operating an unlicensed online gambling business.

McHale immediately ordered Kalshi to preserve records connected to Washington consumers. The court has not yet settled the wider operating terms: the parties must submit proposals by August 3, and the judge intends to issue a further order specifying the injunction’s requirements by August 5.

The ruling does not yet establish how quickly Kalshi must restrict access from Washington, which categories of event contracts will be restricted, or how existing customer positions will be handled.

Kalshi argued that the Commodity Futures Trading Commission’s exclusive jurisdiction over designated contract markets prevents Washington from applying gambling laws to its contracts. McHale rejected that position, writing that the Commodity Exchange Act does not preempt Washington gambling law and that Kalshi can comply with both state and federal requirements.

The judge pointed to federal statutory language preserving state authority and cited the CEA provision governing event contracts involving activity unlawful under state law. He also rejected Kalshi’s reliance on the CFTC’s impartial-access rule, finding that the rule does not require a platform to make contracts available where they violate state law.

The case began in state court before Kalshi removed it to federal court, but a federal judge returned it to state court in May, finding that Washington’s complaint sought to enforce state gambling laws and did not create federal jurisdiction. The Ninth Circuit declined to pause that remand.

Kalshi spokesperson Jacki McGavick said states lack jurisdiction over prediction markets and cited the Third Circuit’s April ruling, which protected Kalshi from New Jersey regulators by finding that federal law likely preempts state restrictions. Washington’s decision points in the opposite direction and follows a recent injunction defeat in New York, where a judge also found the CEA did not displace state gambling rules.

The conflicting legal outcomes leave Kalshi protected in parts of the Third Circuit while facing mounting restrictions elsewhere. The Washington court has not resolved the state’s lawsuit or awarded restitution, but the preliminary finding gives the attorney general immediate leverage.

Source: https://news.bitcoin.com/washington-judge-rejects-kalshis-federal-defense-grants-state-injunction/