Courts weigh CEA preemption in four state cases

Courts in four states saw competing filings this week over whether the Commodity Exchange Act (CEA) displaces state gambling laws for event contracts offered by prediction markets. The filings include requests for preliminary injunctions, a stay motion and a federal removal.

Wisconsin moved for a preliminary injunction to bar Kalshi, Robinhood, Coinbase and related firms from offering sports event contracts in the state. The state’s complaint contends the platforms are facilitating illegal sports betting and violating Wisconsin gambling statutes, and argues that the CEA does not preempt state law and that sports event contracts are not swaps under federal law. Wisconsin conditioned its injunction request on the court denying its pending motion to remand the case to state court; if the injunction is granted, the companies would be prohibited from offering sports event contracts in Wisconsin while litigation continues.

Robinhood filed a reply asking the court to transfer the case to the Eastern District of Wisconsin. The filing notes the Commodity Futures Trading Commission has sued the state in that district and argues the same preemption questions arise there. Robinhood said the federal forum is likely to resolve merits issues sooner because briefing in the CFTC matter is further advanced.

In Rhode Island, Polymarket joined Kalshi in seeking a preliminary injunction in federal court to block enforcement of state gambling laws against the platforms while jurisdictional issues are resolved. Polymarket’s motion asserts federal law preempts the state enforcement action and states the suit exposes the company to potential penalties, disrupts operations it views as federally authorized and harms user trust. The motion follows a court consolidation of Rhode Island’s enforcement case with Kalshi’s separate federal lawsuit challenging the state’s regulation of event contracts.

Illinois asked a federal court to stay the CFTC’s lawsuit that challenges the state’s restrictions on prediction markets. Illinois told the court the same legal questions-whether sports event contracts qualify as swaps under the CEA and whether federal law preempts state gambling rules-are before a separate case brought by Coinbase, which has been fully briefed and argued. The state said it is not enforcing its prediction market rules at present while the Coinbase court considers a preliminary injunction request.

Kalshi removed New Mexico’s enforcement suit to federal court, arguing the case raises federal questions about swap classification and CFTC jurisdiction. The notice of removal cited parallel preemption disputes pending in multiple federal courts, including actions the federal government has brought in other states. New Mexico is expected to file a motion to remand; previous removal attempts in Nevada, Washington and Massachusetts were returned to state court.

The recent filings focus on procedural issues-injunctions, stays, venue and removal-as courts consider the underlying swap classification and preemption questions. Appeals are pending in several federal circuits, and judges in different jurisdictions have reached different conclusions on whether the CEA displaces state gambling laws when applied to event contracts.