Federal appeals courts split as Supreme Court petition waits

In August, a federal judge in Utah ruled that the Commodity Exchange Act does not preempt Utah's gambling laws. Kalshi appealed. The Tenth Circuit denied the injunction. On Tuesday, Utah Attorney General Derek Brown filed a state court complaint seeking to shut Kalshi's operations entirely and recover between $30.6 million and $61.2 million in fees the state says were collected illegally from more than 32,000 verified Utah accounts.

Brown's framing was deliberate: "Utah has said no to gambling since statehood in 1896, and that didn't change when betting moved onto cellphones." That sentence is not legal argument. It is a signal to every other no-gambling state that the preemption question is still open, and they should act accordingly.

Here is where the map gets complicated. The Third Circuit sided with Kalshi in its dispute with New Jersey. The Sixth Circuit, unanimously, rejected Kalshi's preemption arguments in Ohio and Tennessee. The Tenth Circuit has now declined to protect Kalshi in Utah pending appeal. Three circuits, two readings of the same federal statute. New Jersey has since asked the Supreme Court to resolve the split, with a bipartisan coalition of state attorneys general behind the petition.

The prediction market industry built its legal strategy around one central argument: CFTC designation as a contract market places these instruments beyond state reach, full stop. That argument has won in one circuit and lost in two others. Kalshi's spokesperson repeated it Tuesday — "no single state should have a veto over it" — but a company whose preemption claim depends on circuit geography is not a company with a settled legal position. It is a company in discovery about how much its federal license is actually worth.

The Utah complaint is more aggressive than Ohio's approach for a structural reason. Ohio regulators issued cease-and-desist letters and set compliance deadlines. Utah is going straight to disgorgement — demanding that Kalshi surrender profits already collected. That distinction matters. A cease-and-desist can be litigated forward; a disgorgement claim reaches backward, and it names Susquehanna International Group and Susquehanna Government Products as defendants alongside Kalshi affiliates. The market-maker is now a party, not a peripheral figure.

I have watched federal preemption arguments collapse at the state level before, in industries that believed their regulatory designation made them sovereign. The error is consistent: federal designation tells you who oversees the instrument going forward. It does not automatically extinguish state law claims that attach to conduct already completed. Utah's $61 million demand is premised precisely on that gap.

The consensus read is that a Supreme Court cert grant resolves everything. I don't think the timeline or the cert calculus is that clean. The Court takes circuit splits when the split is mature and the lower courts have fully worked through the question. The Tenth Circuit's appeal is not yet decided. The Third Circuit's ruling is relatively recent. The Court may wait for the circuit picture to stabilize further before granting review, which means state enforcement actions — and disgorgement claims — accumulate in the interim.