Judge Roth Dissents as 3rd Circuit Sides With Kalshi

The U.S. Court of Appeals for the Third Circuit ruled for prediction-market operator Kalshi, finding that New Jersey regulations could not be applied to bar certain event-based contracts to in-state users. Judge Jane R. Roth filed a written dissent.

Kalshi challenged New Jersey rules that prohibited the company from offering particular prediction-market contracts to state residents. The company argued the restrictions exceeded state authority and unlawfully blocked online markets where users buy and sell contracts tied to future events. A three-judge panel rejected the state’s interpretation and concluded the rules could not be used to stop Kalshi’s offerings as the state had attempted.

The majority considered whether New Jersey’s regulatory framework allowed the state to prevent Kalshi from listing and executing the disputed contracts for customers in the state. The panel concluded the state’s enforcement position was legally deficient under controlling precedent and remanded parts of the case for further proceedings consistent with its opinion.

Roth wrote in her dissent that the majority applied an overly expansive reading of federal law and precedent that, in her view, reduced the state’s power to regulate gambling and market conduct to protect consumers and public order. She wrote that the ruling risked eroding established lines between permissible regulation and preemption and could leave states with fewer tools to address fraud, manipulation or other harms. Roth added that “the court was replacing the careful balancing performed by regulators with judicial fiat.”

Kalshi offers tradable contracts tied to outcomes such as economic indicators and political events. Regulators in several states have questioned whether such contracts amount to illegal gambling, require specific licenses, or pose risks of market manipulation.

The ruling clears a legal hurdle for Kalshi in New Jersey but leaves open questions about the scope of state regulation over online prediction markets. The case returns to the district court for further proceedings. New Jersey may seek a rehearing in the Third Circuit or petition the U.S. Supreme Court.

Some legal analysts expect the decision to prompt similar challenges in other circuits as companies and states seek clarity on whether prediction markets are regulated under federal securities or commodities law, state gambling statutes, or other authorities. Roth’s dissent indicates at least one appellate judge favors preserving broader state regulatory authority absent clearer legislation.