While Kalshi isn’t quite out of the woods after notching preliminary legal victories in New Jersey and Nevada, the company is also engaged in a third case against Maryland, one that could prove most critical for several reasons.
“The outcome here is pivotal because if Kalshi wins, then some of the other states that are looking at this are going to see three court cases, three victories for Kalshi,” said sports betting and gaming lawyer Daniel Wallach. “It could disincentivize some of the state governments to take any kind of an enforcement action against Kalshi. It could have a chilling effect on how states approach Kalshi in the future.”
The Kalshi vs. Maryland case is at a pivotal juncture. After initial oral arguments on May 28, Judge Adam Abelson, the U.S. District Court judge for the District of Maryland overseeing Kalshi’s preliminary injunction case, requested supplemental briefings specifically related to the issue of judicial estoppel, which prohibits a party from adopting a position that contradicts a position they’ve taken previously in a related court proceeding. Both sides filed supplemental briefs on June 13.
While the courts consider Maryland and Kalshi’s supplemental briefs, attention this week turned toward Kalshi’s case in New Jersey. Hundreds of tribal entities and five other key stakeholder groups signed off on amicus curiae briefs submitted in the Third Circuit Court in support of New Jersey’s appeal against Kalshi’s preliminary injunction.
While NJ is certainly an important battleground in determining the future of sports event contracts, Maryland could be the first to yield some legal clarity on the issue. Wallach recently spoke with PredictionNews senior political reporter and industry analyst Chris Gerlacher about the importance of the ongoing Maryland case in a recent Prediction News Update podcast.
Timing is everything: Why Kalshi vs. Maryland is pivotal
Kalshi’s case in Maryland has had a different feel from the ones in Nevada and New Jersey for a number of reasons, one being lines of questioning from the respective judges. As Wallach notes:
“The most important battleground right now in my opinion is Maryland because Judge Abelson has raised some very important points and has been skeptical of some of the arguments raised by Kalshi before the Maryland federal court.”
This, of course, was before six different groups of NJ supporters filed amicus briefs against Kalshi in the Third Circuit Court. Still, in terms of where key stakeholders, including tribal gaming entities, can have the greatest immediate impact, Wallach pointed to the Maryland case timeline.
“If you’re looking to get W’s or you’re looking to stunt the momentum of Kalshi, the most immediate point of entry—the one that will have the greatest impact at the soonest possible time—is the Maryland case. Because the Maryland case will be decided on the District Court level before the Third Circuit [in New Jersey] renders its ruling.”
Here are key dates so far in Kalshi’s suit against Maryland:
- April 7 – The Maryland Lottery and Gaming Control Commission sends Kalshi a cease-and-desist letter.
- April 21 – Kalshi files suit against Maryland, requesting a temporary restraining order.
- May 9 – Kalshi amends filing to request both a temporary restraining order and a preliminary injunction like in the other state cases.
- May 12 – Maryland files opposition to Kalshi’s request.
- May 19 – Kalshi files its reply to Maryland’s opposition.
- May 28 – Hearing where Initial arguments were heard.
- June 2 – Joint supplemental briefing timeline filed.
- June 13 – Both parties file supplemental briefs in response to Judge Abelson’s request for additional information on the issue of judicial estoppel.
- June 25 – Deadline for responses to supplemental briefs.
Wallach said he would expect Judge Abelson to issue a ruling by mid-July, assuming no further supplemental brief requests or delays.
Kalshi responds on contradictory statements about sports markets and ‘gaming’
During initial oral arguments in the May 28 hearing, Abelson grilled Kalshi lawyers about statements made last year when the prediction market platform sued the CFTC over its right to offer contracts related to party control of Congress (election contracts). In court filings, Kalshi, in arguing that election markets aren’t gaming, said that sports event contracts would fall under gaming, which is one of a few categories in which markets are prohibited under Rule 40.11 (a), a change to the Commodities Exchange Act (CEA) approved by Congress in 2011.
During that case, Kalshi lawyers also said, “Contracts that involve games are not the type of contracts that we want listed on exchange because they don’t have any real economic value.”
Judge Abelson questioned whether the prior case constituted a judicial estoppel and requested supplemental briefs from both parties on that issue and any other issue they wanted to bring up. In their brief, Kalshi argued that their previous statements in that separate case should not be held against them in this case.
“Kalshi’s position on the issue of judicial estoppel is that whatever they said in the DC Circuit and the DC District Court on Congressional control contracts was not the issue at play in that case,” Wallach said.
“The issue in the case was somewhat related but the result reached by the District Court in concluding that Kalshi’s political event contracts fell outside the gaming categorization…doesn’t mean that Kalshi should be stopped from arguing something else about sports betting in the current case because the first case was about the issue of political event contracts; it wasn’t about whether sports betting or sports event contracts should be allowed, and that’s a very crucial distinction.”
It will be up to the court to determine if Kalshi’s argument holds up.
“At best, even if it’s not a judicial estoppel, it’s certainly a statement that’s inconsistent with Kalshi’s present position,” said Wallach. “So how the court reacts to that and whether the court treats that as an estoppel or some negative inference to be drawn to deny preliminary injunctive relief to Kalshi remains to be seen.”
Supplementary briefs could help both sides
Maryland, in its supplemental brief, is arguing that Kalshi’s contradictory statements are a judicial estoppel and that the 2011 additions to the CEA amounted to a “categorical prohibition on gaming contracts.”
Wallach said that Kalshi and Maryland have “diametrically opposite views” on how to interpret Rule 40.11(a) of the CEA, which prohibits event contracts that “reference terrorism, assassination, war, gaming, or an activity that is unlawful under any State or Federal law.”
Maryland’s argument is that the CFTC doesn’t have jurisdiction over sports markets being offered in the state “if there’s a categorical prohibition against any event contract that involves gaming.”
“It’s beyond the purview of the CFTC to even allow it or to even consider it because they made the public interest determination 14 years ago when the CFTC unanimously adopted Rule 40.11(a)(1),” Wallach said of Maryland’s stance.
Kalshi’s argument is that if it’s a CFTC rule, it’s up to the CFTC to enforce it.
“It’s not for Maryland to enforce and it’s not for the federal courts to enforce,” Wallach said of Kalshi’s argument. “If anything, that reaffirms the CFTC’s exclusive jurisdiction.”
According to Wallach, by the judge requesting these supplemental briefings, he’s allowing Maryland to “firm up some of the vulnerabilities in Kalshi’s legal position.” But they could also be a “huge favor” to Kalshi.
“Instead of ruling on the basis of the oral argument, where (the judge) was very cynical and skeptical about some of the positions Kalshi has taken,” Wallach said, “he’s given them a second chance to basically rescue victory from the jaws of defeat.”
Maryland ruling could affect current, future legal action against Kalshi
The outcome of the Maryland case could loom large over future cases in which states that offer legal, regulated sports betting are trying to stop Kalshi from offering what they consider illegal sports wagering. Kalshi has yet to respond to recent lawsuits from a growing list of other states, including Ohio, Illinois, Massachusetts, South Carolina and Kentucky.
Meanwhile, more amicus curiae have been filed in support of New Jersey in its case against Kalshi.
Responses to the Maryland supplemental briefs are due June 25. Wallach said that the outcome, which he feels could go either way, could impact other states’ potential legal action against Kalshi.
“A state victory in the Maryland case could potentially open the door to more states deciding to take a tougher stance against Kalshi,” Wallach said. “So this one’s pivotal.”
Conversely, a Kalshi victory in Maryland could put the prediction market platform on solid legal footing moving forward, as it so closely follows preliminary legal wins in Nevada and New Jersey.
