Maryland court hands Kalshi first legal blow as injunction request rejected
Exchange’s bid for a preliminary injunction to continue operations in the Old Line State has been dismissed, despite similar successes in New Jersey and Nevada
The Maryland District Court has rejected Kalshi’s bid for a temporary injunction, the first time the exchange’s sports event contracts have suffered a setback at court level.
In a bid to ensure Kalshi could continue offering the contracts in all 50 US states to anyone aged 18 and over, the company responded to a cease-and-desist order from the Maryland Lottery and Gaming Control Commission (MLGCC), issued in April, by filing a lawsuit and seeking an injunction.
However, Judge Adam B Abelson denied Kalshi’s request for an injunction on Friday 1 August, noting that the New York-based exchange had “failed to show a likelihood of success” in its lawsuit against the Maryland regulator.
The development marks a contrast from Kalshi’s legal efforts in Nevada and New Jersey, where courts in both states have ruled in its favour despite concerns from their respective gaming regulators.
Kalshi remains firm in its stance that its contracts, which are traded by users based on their predictions on the outcome of sporting fixtures, are not sports betting, despite drawing the ire of many state-level regulators.
Since the contracts were rolled out at the start of the year, Kalshi has been inundated with cease-and-desist warnings, with more than 12 states expressing their concerns that sports event contracts are effectively just unauthorised sports betting.
In the cases of New Jersey and Nevada, judges supported Kalshi’s claim that its product is regulated at federal level by the Commodity Futures Trading Commission (CFTC), and therefore does not have to adhere to the laws enforced by state-level authorities.
However, the Maryland District Court has rebuffed Kalshi’s attempt to render the state’s regulator powerless, arguing the company would struggle to make the case that it could ignore state law due to being regulated by the CFTC.
“The question of whether the presumption ‘particularly’ applies here turns not on whether the federal statute can be framed as pertaining to an area of existing federal regulation, but rather whether the state law governs conduct that has historically been subject to state regulation,” Ableson explained.
The judge also argued that, historically speaking, there is plenty of evidence that shows gaming and sports gambling is a sector designed to be governed by the states, while he believes Kalshi has not made enough of a case to change that.
“Kalshi’s burden with respect to its field pre-emption claim is to establish that congress clearly and manifestly intended to strip states of their authority to regulate gambling if the company offering such wagering opportunities has been approved to sponsor a designated contracts market for commodities trading,” Abelson added.
“Kalshi has not established that Congress had such clear and manifest purpose.”
As part of being regulated by the CFTC, Kalshi adheres to the Commodity Exchange Act (CEA). It has argued that, to follow the rules put in place by the MLGCC, it would be required to breach the CEA, but Abelson outlined how there was no reason why an exchange could not also obtain a sports betting licence.
He concluded: “It is Kalshi’s desire not to comply with Maryland law and presumably incur some additional compliance costs – not the existence of Maryland consumer protection laws themselves – that creates the situation Kalshi professes to worry about.
“So long as Kalshi obtains a licence and complies with Maryland sports gambling laws, those laws would not pose an obstacle to Kalshi making the sports gambling portion of its platform available to users in Maryland.”
Kalshi has the right to appeal the rejection of its injunction, while it is expected to continue offering its contracts in Maryland in the meantime.
Meanwhile, whether the MLGCC looks to take further action regarding its cease-and-desist order remains to be seen, after it originally agreed not to enforce it until a decision in the case was reached.
Both parties are set to meet on 7 August for a status conference.
EGR has contacted Kalshi for comment.