District Court Denies Injunction on Claim That CEA Preempts Michigan Gambling Laws
The U.S. District Court for the Eastern District of Michigan denied the motion by Coinbase Financial Markets, Inc., for a preliminary injunction, finding the company had not shown a likelihood of success on its claim that the Commodity Exchange Act ("CEA") preempts state gambling laws as applied to sports-related event contracts.
At this preliminary stage, the court found Coinbase's sports event contracts, tied to outcomes like whether a college team makes the playoffs, are not swaps under CEA Section 1a ("Definitions"), since reading the swap definition that broadly would render neighboring, financially focused definitions superfluous and could effectively criminalize ordinary sports betting nationwide.
Even treating the contracts as swaps, the court held the CEA does not preempt Michigan's Lawful Sports Betting Act under any theory: (i) express preemption fails because CEA Section 2 ("Jurisdiction of Commission") grants exclusive jurisdiction to an agency, not a governing law, and is qualified by savings clauses preserving state authority; (ii) field preemption fails because the special rule for event contracts in CEA Section 5c ("Common provisions applicable to registered entities") expressly incorporates state law by letting the CFTC bar contracts that are illegal under state law; and (iii) conflict preemption fails because compliance with both statutes is possible - CFTC Rule 40.11 ("Review of event contracts based upon certain excluded commodities") already bars registered entities from offering gaming-related event contracts, so Michigan's law arguably complements rather than conflicts with federal objectives.
The court acknowledged the CFTC has proposed amendments to Rule 40.11 but reasoned that notwithstanding the pending rulemaking, Coinbase would more than likely violate the rule as it currently stands. Any revision to the federal rule could reshape the conflict-preemption analysis in later rounds of this or similar litigation.
The court dismissed Coinbase's claim against the Michigan Gaming Control Board for lack of jurisdiction, finding the Board is not a state official subject to suit under the Ex parte Young exception to Eleventh Amendment immunity. Coinbase had standing against the remaining defendants based on a credible threat of enforcement, but the court found the balance of harms and public interest favored the state's interest in enforcing its own gambling laws.