After 9th Circuit ruling, Mayes pushes to revive her gambling case against Kalshi

Attorney General Kris Mayes wants an appeals court to dissolve a trial court judge’s order that blocked her from prosecuting online prediction market company Kalshi for violating Arizona’s gambling laws.

Her request comes after appellate judges in a different case ruled last month that gambling on sporting events is not protected by the federal law that otherwise allows prediction market firms to operate.

That ruling, which came in a similar but separate Nevada case, directly undercuts the rationale used by federal Judge Michael Liburdi earlier this year when he issued an injunction stopping Mayes from prosecuting Kalshi and suing the firm for violating Arizona’s gambling laws and a law that makes it illegal to bet on election outcomes in the Grand Canyon State.

In a filing earlier this month, Mayes’ office asked the 9th U.S. Circuit Court of Appeals to overturn that injunction because the Nevada case, KalshiEX, LLC v. Assad, considered identical legal questions as in the Arizona case, so the outcome must be identical.

“Assad is now the law of this Circuit. The legal questions at issue in the instant case are the same, and the result must be the same,” William Durbin, a senior litigation counsel in the Attorney General’s Office, wrote in the filing.

The federal agency that claims to preempt state regulatory power over prediction markets, the Commodity Futures Trading Commission, meanwhile, said it recognizes that Liburdi’s legal reasoning cannot stand, but it asked the 9th Circuit to delay lifting his injunction until Kalshi’s bid for a rehearing before the full appeals court is decided. 

Because Kalshi is asking for an en banc rehearing, meaning all judges in the circuit would hear the case, federal appellate rules automatically pause the formal issuance of the three-judge panel’s ruling in Assad. And since the 9th Circuit could ultimately amend, withdraw or rehear the ruling, the CFTC said it is a “gamble” to order a trial court judge to lift his injunction and take up other parts of the case.

“For example, if this Court were to summarily vacate and send this case back to the district court, but then subsequently grant the petition for rehearing in Assad, this case may very well be re-appealed, making the whole roundtrip unnecessary,” CFTC Deputy General Counsel M. Jordan Minot wrote. 

In Assad, the appeals court upheld a Nevada federal court’s decision to dissolve an injunction that had barred Silver State regulators from enforcing sports gambling laws against Kalshi. The three-judge panel concluded that sports events don’t qualify as “swaps” — the commodities market term referring to a contract whose value depends on some future outcome — and thus aren’t protected by federal law.

In May, however, Liburdi sided with Kalshi’s broad reading of the federal Commodity Exchange Act and concluded that sporting events qualify as “events” and “occurrences” under that law, meaning they can only be regulated by the Commodity Futures Trading Commission. And that agency has largely declined to stop companies like Kalshi from accepting bets on virtually anything they want, including sports and elections.

Last month, three Trump-appointed appellate judges rejected that view, holding that reading “event” to mean “outcome” is an “archaic or rare usage,” and that the words “event” and “occurrence” must carry independent meaning. 

As an example, the court explained that whether the Super Bowl happens is an “occurrence,” but who wins it is not.

“Congress did not take a wrecking ball to all sports gambling regulations built up over decades by federal, state, and tribal governments when it amended the (Commodity Exchange Act),” Judge Ryan Nelson wrote in the unanimous decision.