TLDR
- Washington state filed a motion to send its lawsuit against Kalshi back to state court, arguing the case is based entirely on state gambling law
- The state says Kalshi operates an illegal gambling platform under Washington law and is seeking penalties and injunctive relief
- Washington is following a strategy that already worked for Nevada, where a federal judge agreed to remand a similar case
- A Third Circuit ruling on April 6 sided with Kalshi against New Jersey, finding federal law may preempt state gambling rules
- Courts across the U.S. remain split on whether prediction market contracts are gambling products or federally regulated financial derivatives
Washington state is pushing to move its lawsuit against Kalshi back to state court. The prediction market operator had removed the case to federal court, but Washington says the dispute belongs at the state level.
The state filed a remand motion arguing the complaint is based entirely on Washington law. It makes no federal claims and cites no federal statutes.
Washington says the well-pleaded complaint rule supports its position. Under that rule, a case belongs in state court unless the complaint itself raises a federal question.
Kalshi had pointed to federal laws including the Commodity Exchange Act and the Unlawful Internet Gambling Enforcement Act. Washington called those arguments irrelevant, saying a federal defense alone cannot create federal jurisdiction.
The state also rejected Kalshi’s attempt to use federal officer removal. It argued Kalshi is a private company and does not qualify for that type of jurisdictional claim.
Washington Calls Kalshi an Illegal Gambling Operation
At the heart of the case is Washington’s original complaint. The state says Kalshi runs an unlawful gambling operation under longstanding state law.
The filing states that Kalshi is “openly violating Washington law, and turning a profit in the process.” It also claims the company advertises that it has “cracked the code on legal betting in all 50 states.”
Washington is seeking injunctive relief, civil penalties, and disgorgement. The case is framed as both a gambling enforcement action and a consumer protection matter.
The state warned that allowing removal to federal court would upset the balance between state and federal authority. It said gambling regulation has historically been handled by individual states.
Washington pointed to similar remand decisions in Massachusetts and Nevada. It also cited a pending case in Michigan where Kalshi faces the same type of challenge.
Nevada Win Provides a Blueprint
Washington’s approach closely follows a strategy that already worked in Nevada.
Earlier this year, a federal judge granted Nevada’s motion to remand its Kalshi lawsuit. U.S. District Judge Miranda Du ruled the case was based on Kalshi’s failure to get a Nevada gaming license.
Judge Du found that the Commodity Exchange Act does not fully displace state law. She also rejected Kalshi’s argument that the CFTC needed to be part of the case.
Following that ruling, the Nevada Gaming Control Board won a preliminary injunction. That order blocks Kalshi from offering contracts on sports, elections, and entertainment events in Nevada.
Washington appears to be banking on a similar outcome. The legal arguments in its filing mirror much of what Nevada successfully argued.
However, the legal picture is getting more complicated. On April 6, the Third Circuit Court of Appeals ruled in Kalshi’s favor in a case against New Jersey regulators.
The appeals court upheld a preliminary injunction blocking New Jersey from enforcing its state laws against Kalshi. The court found that Kalshi showed a strong chance of winning its argument that federal law preempts state gambling rules.
The Third Circuit said the Commodity Exchange Act gives the CFTC exclusive jurisdiction over certain event contracts on federally regulated exchanges. That supports Kalshi’s argument that its products are financial derivatives, not gambling.
The ruling creates a direct conflict with how other courts have handled the issue. Legal observers now expect the question to eventually reach the U.S. Supreme Court.
Washington’s remand motion is still pending. The outcome could depend on whether the court follows the Nevada model or gives more weight to the Third Circuit’s recent decision.
