Second Circuit declines to shield Kalshi and Coinbase from New York and Connecticut cases

A three-judge panel of the Second Circuit denied emergency requests by Kalshi and Coinbase to block Connecticut and New York from enforcing their gambling laws while appeals proceed. The ruling leaves the two states able to resume civil cases against the prediction-market operators, but does not decide whether federal commodities law ultimately displaces those state laws.

The panel consolidated three appeals involving the companies and concluded that they had not made the showing required for an injunction pending appeal. The state-court proceedings in Connecticut and New York had been paused while the appeals were considered; without an injunction, Kalshi remains exposed to enforcement in both states.

The denial came shortly after oral arguments on Nov. 3. Judges John M. Walker Jr., Joseph F. Bianco and Dennis Jacobs appeared doubtful that sports-event contracts qualify as swaps under the Commodity Exchange Act. Walker said he did not see how sports betting “in its entirety” could be a swap, while Bianco said the statutory definition appeared directed at inherently financial subjects rather than sports.

Lawyers for Kalshi, Coinbase and the Commodity Futures Trading Commission had sought to stop state enforcement targeting sports contracts. Coinbase lawyer Yaira Dubin argued that the dispute concerned the core market of contracts on which team wins a game, rather than specialised player-proposition products. CFTC lawyer Henry Dickman said the agency was developing an event-contract regulatory framework, directing exchanges to remove contracts outside the public interest and pursuing insider-trading and manipulation cases.

The Connecticut case followed Attorney General William Tong’s August suit against Kalshi. As covered in August, a Connecticut federal judge had already refused to halt the state’s enforcement effort, holding that Kalshi’s sports contracts were not swaps and that monetary damages could address the company’s claimed harm. That court also found Connecticut’s gambling laws complemented federal law rather than conflicted with it.

New York Attorney General Letitia James has sued Coinbase, Gemini Prediction, Kalshi and Polymarket. Her case reaches contracts tied to cultural and political events as well as sports. Kalshi’s lawyer, Will Havemann, told the appeals court that New York’s action could shut down all event contracts on a federally regulated exchange nationwide, not solely sports products offered in New York.

In April, the Third Circuit held that Kalshi’s sports-related contracts were swaps within the Commodity Exchange Act and that the CFTC had exclusive authority over them, preempting New Jersey’s regulation. A dissenting judge said the products were gambling and that state gambling authority should not be displaced.

Kalshi and Coinbase may ask the full Second Circuit to rehear the matter, although the court need not grant en banc review. The Supreme Court had not announced whether it would hear three petitions concerning conflicts between designated contract markets and state governments.