Washington invokes Ninth Circuit ruling to seek dismissal of Underdog suit

Washington has asked a federal court to throw out Underdog Predict’s challenge to the state’s gambling enforcement, arguing that an August Ninth Circuit decision against Kalshi forecloses the company’s central federal-pre-emption claims.

The state defendants, led by Attorney General Nick Brown and Washington State Gambling Commission officials, filed their motion on Oct. 28 in Underdog Exchange DCM Inc. v. Brown. Washington contends that sports-based event contracts remain subject to its gambling laws and that Underdog’s contrary position is “doomed under the Ninth Circuit ruling,” according to RG.org.

As covered in September, Washington was one of five states that Underdog sued to stop officials from applying state gambling laws to its prediction-market business.

Underdog Exchange DCM Inc. and UDM LLC, which does business as Underdog Predict, filed the Washington case on Sept. 8. The companies seek a declaration that state gambling laws are pre-empted as applied to their exchange, plus a permanent injunction preventing enforcement against them.

The complaint describes Underdog Exchange as a Commodity Futures Trading Commission-designated contract market and UDM as a federally registered futures commission merchant. It says Underdog began listing event contracts in Washington on July 17 and received CFTC certification for hundreds of contracts between July 12 and Sept. 2.

Underdog advances three theories under the Commodity Exchange Act: express pre-emption, field pre-emption and conflict pre-emption. It argues that the CFTC has sole authority over derivatives trading on designated contract markets, while Washington’s enforcement position could expose the companies to civil penalties, criminal liability and wider consequences for their nationwide operations.

Washington’s dismissal request relies on the Ninth Circuit’s Aug. 28 ruling in KalshiEX v. Assad, which concerned Nevada’s ability to apply its gaming rules to Kalshi sports contracts. The appeals court held that those contracts were likely not swaps under the Commodity Exchange Act because they were sports bets, even though the statute expressly pre-empts state regulation of swaps traded on a designated contract market.

The Ninth Circuit also rejected Kalshi’s arguments that Nevada law conflicted with federal law or that Congress had occupied the field, while remanding the separate issue of election contracts to the district court. That outcome conflicted with an earlier Third Circuit decision that had found Kalshi likely to succeed in its challenge to New Jersey regulators.

Washington has already used the Assad decision in seeking dismissal of a similar lawsuit brought by Novig. The state had also won a preliminary injunction against Kalshi in King County Superior Court on July 20 after Brown brought an enforcement action in March.

The Washington case is now assigned to U.S. District Judge Benjamin H. Settle, rather than Judge Thomas S. Zilly. Court records show that Judge Robert S. Lasnik recused himself on Sept. 14; the matter then moved to Judge David W. Christel on Sept. 15, before its reassignment to Settle on Oct. 29.

Underdog filed its own motion for a preliminary injunction or, alternatively, a stay pending appeal on Oct. 29. The parties must submit a joint status report and initial disclosures by Nov. 13; Washington’s dismissal motion is noted for Nov. 25 and Underdog’s injunction request for Nov. 27.