Judge returns Kalshi vs. Massachusetts case to state court
US District Court for Massachusetts Judge Richard G. Stearns has ruled against Kalshi’s attempt to move a state lawsuit to federal court.
The case will now be returned to the Superior Court of Suffolk County.
In September, Massachusetts Attorney General Andrea Campbell sued Kalshi over the platform’s sports prediction markets that were available to customers in the state. In doing so, she became the first state attorney general to make such a move.
Massachusetts, like other states where Kalshi has faced federal court charges, claims that the prediction market violates state gambling laws by enabling customers to wager money on sports outcomes without having a gambling license or complying with regulatory requirements for gambling operators.
Kalshi argued that the Commodity Exchange Act preempts state laws and that only the Commodity Futures Trading Commission has oversight of its activities.
‘Preemption’ in US law serves as a defense against state-law claims, while ‘complete preemption’ is used to change a state-law claim into a federal claim.
Kalshi has previously argued similar preemption claims in other states, including Nevada and New Jersey, where it avoided state-level enforcement actions.
Judge Stearns rejected Kalshi’s claim of complete preemption, explaining that such a doctrine applies only when Congress clearly intends for a federal law to replace state authority fully.
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The Backstory
Why the venue fight in Massachusetts matters
The Massachusetts case turns on a familiar question in Kalshi’s nationwide clash with state regulators: Who gets to police event contracts that look and feel like sports wagers? By sending the dispute back to Suffolk County Superior Court, the federal judge ensures that state claims under Massachusetts gambling law will be weighed on their own terms, not recast as a federal case under the Commodity Exchange Act. That venue choice fits a pattern emerging across the country, where courts are drawing sharper lines between federal oversight of derivatives markets and states’ authority over gambling.
Kalshi has argued that the Commodity Futures Trading Commission’s regime preempts state gambling rules. States counter that sports outcome contracts are sports bets, and exchanges facilitating them must follow state licensing and consumer protection requirements. The Massachusetts attorney general’s suit joined a broader wave of state actions, including cease-and-desist orders and civil enforcement moves, that elevated what began as a market-structure question into a test of state sovereignty over online wagering.
The decision to keep the case in state court raises stakes for Kalshi’s preemption theory. Similar arguments have produced mixed results elsewhere, with federal judges in different circuits reaching divergent conclusions about whether and how CFTC oversight can shield a prediction-market operator from state gambling regimes.
Early wins and warning shots in New Jersey
New Jersey emerged as an early bellwether. In late April, a federal judge granted Kalshi a preliminary injunction blocking state regulators from enforcing a cease-and-desist order while the case proceeds, a move that allowed the platform to continue offering sports event contracts in the state. That ruling, summarized in a report on the New Jersey injunction, leaned on Kalshi’s argument that its markets, as federally regulated event contracts, are distinct from state-licensed sportsbook wagers. The judge did not decide the underlying legality but signaled that New Jersey’s attempt to halt operations raised substantial questions.
The preliminary win spurred a strong backlash. A bipartisan coalition of 36 attorneys general backed New Jersey’s appeal to the U.S. Court of Appeals for the Third Circuit, arguing that allowing a federally supervised exchange to run sports-like markets without state licenses would undercut consumer safeguards and tax regimes. The push is detailed in coverage of the multistate amicus brief, which was supported by major industry trade groups. The coalition’s message was tight: states should retain the ability to regulate online sports betting in all its forms.
That counteroffensive underscores the core risk to state regulators. If federal law could be read to occupy the field, states fear a shadow sportsbook sector would emerge, competing with licensed operators but outside state tax and responsible gambling frameworks. New Jersey’s appeal, boosted by the amicus wave, sets up a consequential appellate test of the preemption arguments that Kalshi also raised in Massachusetts.
Nevada’s front line: casinos, competition and constitutional limits
Nevada has framed the dispute as an existential competition issue for its regulated sportsbook industry. After the Nevada Gaming Control Board ordered Kalshi to stop, the company sued in federal court and secured a temporary pause on enforcement. A federal judge pledged to move quickly, recognizing the case could reshape the U.S. sports betting landscape, as noted in reporting on the expedited Nevada judgment.
The stakes widened when the Nevada Resort Association, representing 70 casinos, sought to join the case, warning that authorizing Kalshi’s contracts would carry “drastic” consequences for the state’s sports betting market. The judge must decide whether to allow that intervention before ruling on the merits, according to coverage of the Resort Association’s bid to intervene. Nevada officials also flagged election-related contracts as an added legal risk, citing a state constitutional bar on election wagering, a reminder that prediction markets often straddle categories that states regulate separately from traditional sports bets.
Nevada’s position crystallizes the operator-versus-regulator dynamic. Casinos and sportsbooks argue they shoulder compliance burdens on age checks, responsible gambling and suspicious activity monitoring. Allowing a federally supervised exchange to offer similar end-user experiences, they say, creates asymmetric oversight and uneven playing fields. Kalshi responds that CFTC rules impose rigorous market integrity and surveillance obligations, and that its event contracts serve informational and hedging purposes, not just speculation.
Maryland’s setback for Kalshi contrasts with New Jersey
While New Jersey granted interim relief to Kalshi, Maryland went the other way. A federal judge denied Kalshi’s bid to block state enforcement, finding the company had not shown likelihood of success across the elements of its defense. That decision, which Kalshi has appealed to the Fourth Circuit, is recapped in reporting on the Maryland ruling. The case reinforces how outcomes can hinge on local statutes, record facts and judicial views about the line between federally regulated derivatives and state-regulated gambling.
Maryland’s approach aligns with states that view sports outcome contracts as functionally identical to sportsbook wagers offered without a license. The ruling also gives momentum to attorneys general pressing the Third Circuit to reverse the New Jersey injunction, by showing courts are willing to let state enforcement proceed despite Kalshi’s CFTC authorization.
The throughline: preemption, parity and consumer protection
Across these forums, the legal hinge is preemption. Kalshi argues the Commodity Exchange Act creates a comprehensive framework that displaces state gambling laws as applied to federally listed event contracts. States draw a narrower reading, saying the act governs commodity trading but does not strip their power to regulate gambling conduct directed at residents. Federal judges are parsing not only statutory text but also practical effects: whether retail-facing event contracts are indistinguishable from sports bets and whether federal oversight provides parity with state safeguards on problem gambling, fraud and underage access.
The venue rulings are not mere procedural skirmishes. Keeping cases in state court, as in Massachusetts, can elevate state-law questions and reduce opportunities to convert disputes into federal ones. Favorable federal injunctions, as in New Jersey, can preserve operating status and influence market expectations. Adverse federal rulings, like Maryland’s, can embolden state regulators to continue enforcement. Nevada, sitting at the center of the commercial sports betting industry, could deliver a high-impact decision on competitive dynamics and regulatory boundaries.
For operators, investors and policymakers, the path from here runs through layered litigation. The Third and Fourth circuits will shape the contours of preemption. Nevada’s district court could redefine how prediction markets coexist with sportsbooks. The Massachusetts remand sets up a state-law test case that may echo beyond Boston. Each outcome will weigh on the same questions: where to draw the line between federally supervised event markets and state-governed gambling, and how to align consumer protections when those lines blur.
