Washington Judge Rejects Kalshi’s Federal Defense, Grants State Injunction

Court Says Federal Registration Does Not Displace State Law

King County Superior Court Judge John McHale granted Washington’s motion for a preliminary injunction against Kalshi on Monday, finding the state is likely to show that its event contracts violate gambling and consumer-protection laws. The decision advances a lawsuit filed in March by Attorney General Nick Brown, who accused the federally registered exchange of operating an unlicensed online gambling business.

McHale immediately ordered Kalshi to preserve records connected to Washington consumers. The wider operating terms have not yet been settled: the parties must submit agreed or competing proposals by noon on Aug. 3, and the judge said he intends to issue a further order specifying the injunction’s requirements by Aug. 5.

The ruling therefore does not yet establish how quickly Kalshi must geofence Washington, which categories of event contracts will be restricted or how existing customer positions must be handled. It grants preliminary relief to the state while leaving the precise implementation language for the August order.

Kalshi argued that the Commodity Futures Trading Commission’s exclusive jurisdiction over designated contract markets prevents Washington from applying gambling laws to contracts offered on its exchange. McHale rejected that position, writing that the Commodity Exchange Act does not preempt Washington gambling law and that Kalshi can comply with both state and federal requirements.

The judge pointed to federal statutory language preserving authority held by state regulators and courts. He also cited the CEA provision governing event contracts involving gaming or activity unlawful under state law, reasoning that states retain the power to determine what constitutes illegal gambling within their borders.

McHale separately rejected Kalshi’s reliance on the CFTC’s impartial-access rule. Kalshi has argued that federally regulated exchanges cannot discriminate among users based on their location, but the judge found the rule does not require a platform to make contracts available where they violate state law.

The case began in King County Superior Court before Kalshi removed it to federal court. US District Judge John Coughenour returned it to state court in May, finding that Washington’s complaint sought to enforce state gambling laws and did not create federal jurisdiction merely because Kalshi planned to raise a federal defense. The Ninth Circuit declined to pause that remand.

Kalshi spokesperson Jacki McGavick said states lack jurisdiction over prediction markets and cited decisions including the Third Circuit’s April ruling. That divided appeals court protected Kalshi from New Jersey regulators, holding that federal law likely preempts state restrictions on sports contracts traded through a CFTC-registered exchange.

Washington’s decision points in the opposite direction and follows Kalshi’s recent injunction defeat in New York, where a judge also found the CEA did not displace state gambling rules. The conflicting results leave Kalshi protected in parts of the Third Circuit while facing mounting restrictions elsewhere.

The Washington court has not resolved the state’s lawsuit or awarded restitution, penalties or disgorgement. Its preliminary finding nevertheless gives the attorney general immediate leverage and adds another state-court rejection of Kalshi’s central defense that federal exchange status leaves no room for local gambling enforcement.