Second Circuit Lets New York, Connecticut Enforce Laws Against Kalshi, Coinbase

The Second Circuit Court of Appeals has denied requests from prediction market operators Kalshi and Coinbase for injunctions that would have stopped New York and Connecticut from enforcing their state gambling laws against sports event contracts. Legal Sports Report reported the decision, issued on Tuesday. The companies continue to appeal lower court rulings, but until those appeals are resolved, both states can enforce their bans now.

What the court decided

The court order said the motions were denied because the appellants failed to make the required showing that an injunction pending appeal was warranted. The order did not explain which arguments fell short. The ruling covers three appeals considered together: Kalshi's dispute with the New York State Gaming Commission, Kalshi's challenge against Connecticut's Department of Consumer Protection and state officials, and Coinbase's challenge against Connecticut Attorney General William Tong and other state officials.

The companies argue that their sports contracts are swaps under the Commodity Exchange Act, which would place them under federal Commodity FuturesФьючерсыA futures contract is a standardized exchange-traded contract to buy or sell an asset at a price agreed in advance, on a set date in the future. Trading Commission regulation. New York and Connecticut disagree, arguing that the contracts are essentially sports bets and should be regulated under state gambling laws.

New York and Connecticut cases

New York sued Kalshi on July 31, accusing the operator of running an illegal gambling business without a gaming license. The state seeks to stop Kalshi from offeringОфферAn offer is an advertiser's proposal to partners: the product together with payout terms, geos, and traffic requirements, for which the partner receives a reward. sports event contracts and is pursuing financial penalties, including forfeiture of gains, restitution to consumers and fines based on profits. Kalshi moved the case to federal court, and New York filed a motion on August 7 to have it returned to state court.

Connecticut filed a lawsuit on August 26 to stop Kalshi from offering sports event contracts to state residents. Kalshi also moved that case to federal court, and Connecticut asked for it to be sent back on September 8. Daniel Wallach, a sports betting attorney, called the decision a major win for both states and noted that they now need a remand order returning the cases to state courts before they can pursue a preliminary injunction against sports contracts.

Positions in other circuits

U.S. District Judge Analisa Torres ruled against Kalshi in July, rejecting its request for a preliminary injunction and finding that the Commodity Exchange Act did not override New York's gambling laws as applied to its sports prediction markets. In August, U.S. District Judge Vernon D. Oliver denied Kalshi's preliminary injunction request in Connecticut, concluding that the contracts did not qualify as swaps under the CEA and that federal law did not displace the state's authority over sports wageringВейджерWagering requirement (wagering) is a bonus condition that sets how many times the bonus amount must be bet before winnings can be withdrawn. It is usually written as a multiplier, for example x30..

According to Legal Sports Report, the Third Circuit previously sided with Kalshi in its dispute with New Jersey, while the Sixth and Ninth Circuits ruled in favor of state regulators. Massachusetts, Michigan and Nevada have already implemented bans on such contracts, and Ohio and Tennessee could follow after their win in the Sixth Circuit.

What's next

The next significant developments in New York and Connecticut could come from the separate remand proceedings. If those motions are granted, the lawsuits would return to state courts, where the states could seek preliminary injunctions against sports contracts.