Federal Court Rules CEA Does Not Preempt Utah's Regulation of Prediction Markets
Commentary by Steven Lofchie
The U.S. District Court for the District of Utah ruled that the Commodity Exchange Act ("CEA") does not preempt the state's authority to enforce its anti-gambling laws against a designated contract market offering sports-related event contracts.
Judge Robert J. Shelby granted summary judgment to Utah officials and denied KalshiEX LLC's motion for a preliminary injunction. Kalshi, which operates as a CFTC-designated contract market offering event contracts on sports outcomes, sought a declaration under the Supremacy Clause that Utah could not apply its criminal gambling laws to its operations.
The court held that the CEA's exclusive jurisdiction provision for swaps traded on designated contract markets does not expressly preempt state gaming laws. The court reasoned that the statute's savings clause preserves state court jurisdiction and that the CEA limits preemption of state gambling laws to swaps traded off-exchange or falling into specific enumerated categories not applicable to on-exchange sports contracts.
The court also rejected Kalshi's implied preemption arguments. On field preemption, the court found gambling has traditionally been a state-regulated area and that the CEA's savings clause and carve-outs show Congress left room for state regulation. On conflict preemption, the court determined that compliance with both federal and state law was not impossible. In its view, the CFTC's impartial-access requirement for designated contract markets is directed at financial discrimination rather than geographic exclusion and Kalshi had in any event failed to explain why complying with varying state requirements would be impossible.
The court further held that state enforcement of gambling laws does not frustrate the CEA's purposes of market integrity, fraud prevention, and innovation. The court noted Congress has long recognized that states differ in their treatment of gambling and explicitly preserved state authority over gaming laws except in narrow circumstances.
Commentary
The various courts across the country have significantly split on whether the CFTC has jurisdiction over prediction markets and contracts. What makes that split impossible to resolve is that it is not binary: some courts give the federal government total authority, some give the states most of the authority, and some determine that authority should be shared.
What makes the split even more problematic is that it is not limited to the binary question of jurisdiction over all contracts. No court would seem to have a problem with a CFTC-regulated event contract on oil prices. Where the courts further divide is on sports contracts and "cultural" or other public events.
Perhaps in the fullness of time this goes to the Supreme Court. Unfortunately, there is no basis in the legal history for the Supreme Court to make a principled decision as to which contracts are ok, and which are not.
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