Third Circuit backs Kalshi as states build a coalition against it

New Jersey's attorney general filed a petition with the U.S. Supreme Court asking it to resolve the prediction market preemption question, and a bipartisan group of state attorneys general joined the effort. That is the coalition's strongest card. It is also, almost certainly, not enough on its own to determine how this ends.

The circuit split is now clean enough to map. The Third Circuit sided with Kalshi, reading the Commodity Exchange Act's preemption language broadly. The Sixth Circuit went the other way, ruling unanimously that Kalshi's sports event contracts fall outside the CEA's swap definition, and that federal commodities law would not displace state gambling rules even if they qualified. The Tenth Circuit, for its part, denied Kalshi's request for an injunction pending its appeal of a Utah federal court ruling. Three circuits, two positions, one holding company trying to operate a national market across all of them simultaneously.

Utah's new state court complaint is the sharpest enforcement action yet, not because of its dollar figure — Derek Brown is seeking between $30.6 million and $61.2 million in fees allegedly collected from Utah customers — but because of its defendant list. Susquehanna International Group and Susquehanna Government Products appear alongside Kalshi and its affiliates. That means the suit is no longer about whether a prediction market platform violated state law. It is about whether the firms providing liquidity to that platform did too. For any institution considering a market-making role in this space, that is the variable that changes the calculus.

Kalshi's response is the one it always gives: the CFTC has exclusive jurisdiction over federally designated contract markets, and no single state holds veto power. The argument is structurally coherent, and the Third Circuit found it persuasive. The problem is that "structurally coherent" and "prevailing doctrine" are different things when you are operating in a jurisdiction whose preemption ruling has already survived one injunction request.

Polymarket's position is distinct but not insulated. QCX LLC filed its own complaint in Ohio's Southern District on October 16, challenging the state's licensing framework on dormant commerce clause grounds in addition to CEA preemption. Ohio's Type A licensing structure — which favors applicants with in-state physical presence and caps the pool at 25 proprietors — is exactly the kind of local-preference mechanism the dormant commerce clause was designed to address. That argument has a different legal history than preemption, and a different set of precedents. Whether it survives Judge Cole's review is an open question, but it opens a flank that the Sixth Circuit ruling did not close.

The CFTC's October 9 interim final rule, effective October 19, adds another layer. The rule excludes state-licensed sportsbook wagers from the swap definition, which Kalshi reads as hostile and Polymarket reads as ambiguous. What matters more is the comment period running to November 18. The rule's final shape will either sharpen or blur the jurisdictional line the courts are drawing, and any regulatory adjustment before the Supreme Court takes up the New Jersey petition will land in the middle of a live briefing environment.