There is a question at the center of every event contracts case working its way through the federal courts right now, and it is not complicated. When Congress granted the CFTC exclusive jurisdiction over trading on federally designated exchanges in 1974, did it mean what it said? Courts across the country spent the better part of a year giving inconsistent answers. In one week this April, the picture came into much sharper focus.
At the core of these cases is a doctrine called federal preemption. Under the Supremacy Clause of the U.S. Constitution, federal law is the supreme law of the land. Where Congress has occupied a field of regulation, state laws that conflict with or intrude on that federal authority are invalid. In the event contracts context, the argument is that Congress granted the CFTC exclusive jurisdiction over trading on designated contract markets in 1974, and that state gambling laws cannot reach into that space regardless of how states choose to characterize the contracts being traded. We have covered the origins of the preemption framework and the CFTC’s role in asserting it in What the CFTC’s Event Contracts Amicus Brief Is Missing, and the earlier Arizona and Nevada litigation in Arizona, Nevada, and the Limits of Federal Preemption in Prediction Markets. What changed this week is how many courts have now agreed with that framework, and how decisively.
Between April 6 and April 14, 2026, the Third Circuit affirmed a preliminary injunction blocking New Jersey from enforcing state gambling laws against Kalshi, a federal court in Arizona granted the CFTC a temporary restraining order on the same theory, and Kalshi filed a new complaint in Montana against a state that had negotiated a written non-enforcement agreement and then broke it. Those developments, read together with the Department of Justice and CFTC filing affirmative preemption suits against Arizona, Connecticut, and Illinois on April 2, represent the most significant week in event contracts litigation since the D.C. Circuit ruled on Kalshi’s designation in 2024. This article takes stock of where things stand and what the emerging legal framework means for exchanges, operators, and the states still inclined to fight.
The Federal Government Stopped Being a Bystander
For most of 2025, the federal government’s role in the state preemption fights was supportive but indirect. The CFTC filed an amicus brief in the Ninth Circuit in the Nevada litigation in February 2026, arguing that Congress vested the CFTC with exclusive jurisdiction and that state gambling laws cannot reach trading on federally regulated exchanges. That brief was important. It was not a lawsuit.
On April 2, 2026, the DOJ and CFTC filed affirmative suits against three states at once: Arizona, Connecticut, and Illinois. The United States was now a plaintiff. That shift in posture matters in ways that go beyond the specific cases. It signals that the current administration views the preemption of state gambling laws as applied to CFTC-regulated DCMs not as Kalshi’s problem to litigate, but as the federal government’s authority to defend. Every court that follows will be looking at a federal agency asserting its own jurisdictional supremacy, not a private exchange seeking relief from regulatory harassment.
The Arizona TRO, granted on April 10 by Judge Michael Liburdi of the District of Arizona, was granted to the CFTC and the United States, not to Kalshi. That distinction is not cosmetic. It shapes the procedural posture of every subsequent filing.
Four Threshold Holdings That Will Travel
Before reaching the preemption merits, Judge Liburdi resolved four threshold questions that had been left open across the prior rounds of litigation. Each of them matters beyond Arizona.
The court held that the CFTC has standing to sue to enjoin the enforcement of preempted state laws, drawing on the general rule that the United States may sue to protect its interests. It held that Younger abstention does not apply when the United States is a party, foreclosing the argument that federal courts should step aside in deference to state proceedings. It held that the Anti-Injunction Act does not bar relief when the CFTC seeks it. And it held that laches does not run against the CFTC, rejecting Arizona’s argument that the commission had waited too long to seek relief.
Taken together, those four holdings strip away the procedural defenses that state regulators have available when the federal government is the party seeking relief. States defending against CFTC enforcement suits will find their procedural toolkit substantially narrowed.
The Swap Definition Has a Limiting Principle Now
The Arizona order also contains something analytically important that most coverage has overlooked. The court found that the CFTC sufficiently demonstrated that event contracts fall within the CEA’s definition of swaps, because they provide for payment dependent on the occurrence or nonoccurrence of an event associated with a financial, economic, or commercial consequence. But the court was careful to cabin that finding. It added a limiting principle: only those downstream financial consequences that are direct and proximate to the underlying event qualify.
That language is the first judicial attempt to draw an outer boundary around the swap definition as applied to event contracts. It matters because the losses Kalshi has suffered in this litigation, in Maryland, Nevada, and Ohio, were not losses on preemption. They were losses on the threshold question of whether Kalshi’s contracts, particularly sports event contracts, qualify as swaps at all. Nevada dissolved Kalshi’s preliminary injunction not because it rejected preemption but because it concluded that sports event contracts did not fall within CFTC jurisdiction in the first place. The Arizona court’s direct and proximate standard begins to answer that question, and it is a broader answer than the Nevada court was willing to give.
Those three adverse rulings are all on appeal. The Fourth Circuit has the Maryland case. The Ninth Circuit has Nevada, with oral argument scheduled for the same week Kalshi filed in Montana. The Sixth Circuit has Ohio. Three circuits are now looking at the swap definition question, and the Arizona standard will be in the briefing for all of them. A circuit split on this issue is a real possibility, and the Supreme Court is the logical endpoint.
The Third Circuit Settled New Jersey
On April 6, 2026, the Third Circuit affirmed the District of New Jersey’s preliminary injunction in Kalshi’s favor. The court emphasized that because Congress gave the CFTC exclusive jurisdiction over trades on DCMs and preserved state regulation only for trades conducted off DCMs, it was reasonable to conclude that the CEA preempts state law from reaching into Kalshi’s CFTC-licensed exchange. The Third Circuit also found that Kalshi faced irreparable harm, including economic and reputational injury, absent injunctive relief.
The Third Circuit affirmance is the highest-court ruling in Kalshi’s favor to date. It is circuit-level authority for field preemption of state gambling laws as applied to DCM trading. Every district court in the Third Circuit is bound by it. Every district court outside the Third Circuit will treat it as persuasive authority.
Montana Is a Different Kind of Case
Every other state in this litigation followed essentially the same playbook. Cease-and-desist letter. Threat of criminal or civil enforcement. Kalshi files for preliminary injunction. The federal preemption argument is litigated on the merits. Montana is different, and the difference is significant.
In March 2025, Montana’s Gambling Control Division sent Kalshi a cease-and-desist letter asserting that event contracts constituted illegal gambling under state law. On April 11, 2025, Kalshi’s counsel met with GCD representatives and reached a written non-enforcement agreement. The terms, confirmed in writing by Montana on April 16, 2025, were clear. Montana agreed to defer any enforcement pending the outcome of the Nevada litigation and any appeal to the Ninth Circuit. Montana further agreed to provide Kalshi with reasonable notice before commencing any enforcement action once those proceedings concluded.
The Nevada proceedings were still ongoing as of April 2026. The Ninth Circuit had oral argument scheduled for the week Kalshi filed the Montana complaint. The agreement, by its own terms, remained in effect.
On April 6, 2026, Montana mailed Kalshi a new cease-and-desist letter. That letter acknowledged the prior agreement but recharacterized it as conditioned only on the Nevada preliminary injunction, which had since been dissolved. That is not what the agreement said. The actual text, memorialized in the April 11, 2025 email and confirmed on April 16, tied the deferral to the outcome of the proceedings and any Ninth Circuit appeal, not to the existence of the preliminary injunction.
Kalshi’s counsel contacted Attorney General Austin Knudsen the day the letter arrived and asked to speak with his office. Knudsen responded to say he would look into it. He did not follow up. On April 12, Kalshi’s counsel emailed the GCD directly, explained their understanding that the April 2026 letter had voided the prior agreement, and asked for a response by 8 p.m. They attempted to reach the relevant officials by phone. No one responded. Kalshi filed the Montana complaint on April 14.
The complaint pleads preemption on three theories: express preemption, field preemption, and conflict preemption, the same framework that has succeeded elsewhere. But the complaint also establishes a factual record of bad-faith conduct by a state actor that negotiated a standdown agreement, waited nearly a year, and then issued a new enforcement threat that misread the terms of that agreement. Neal Katyal, a former Solicitor General of the United States, is lead counsel for Kalshi alongside a full Milbank team. The choice of counsel signals that Kalshi intends this case to produce durable precedent.
Why the Federal Reserve Paper Belongs in This Analysis
The Montana complaint includes a citation that deserves more attention than it has received in legal coverage. In February 2026, economists at the Board of Governors of the Federal Reserve System published a paper examining Kalshi’s event contract markets as forecasting tools for macroeconomic variables. The paper found that Kalshi markets provide statistically significant improvements over Bloomberg consensus forecasts for headline CPI and over fed funds futures for FOMC meeting outcomes. The Fed economists found that Kalshi’s markets have a perfect forecast record on the day before the FOMC meeting, and that they provide real-time distributional forecasts for macroeconomic variables including GDP, core CPI, and unemployment, instruments for which options data had historically been unavailable.
This is not a legal argument. It is a legitimacy signal, and a significant one. The institution responsible for monetary policy in the United States now has staff economists publishing research on the informational value of prediction markets. States arguing that event contracts are simply gambling dressed up as finance are arguing against a position that the Federal Reserve has, through its normal research process, implicitly rejected. That framing will show up in legislative testimony, regulatory comment letters, and appellate briefs before long.
What the Map Looks Like Now
The preemption argument, grounded in the CEA’s exclusive jurisdiction clause and the 1974 congressional history, is winning in every court that has fully considered it. New Jersey, affirmed by the Third Circuit. Tennessee. Arizona, with the United States as plaintiff. The losses in Maryland, Nevada, and Ohio turned on the swap definition, not on preemption. Those cases are all on appeal.
The DOJ and CFTC suits against Arizona, Connecticut, and Illinois introduced the federal government as an active litigant and resolved the procedural questions that cluttered the earlier rounds. The Arizona threshold holdings on standing, Younger abstention, the Anti-Injunction Act, and laches are now on the record and will travel to every subsequent federal enforcement action.
The swap definition question remains the contested frontier. The Arizona court’s direct and proximate standard is the most favorable articulation Kalshi has received on that issue, and it comes from a court where the CFTC was a plaintiff. Whether the Fourth, Sixth, and Ninth Circuits adopt that standard or something narrower will determine how far federal preemption actually reaches.
Montana adds a dimension no other case has. A state that made a written commitment, broke it, and is now defending a complaint that documents the breach in detail. Whatever the outcome on the preemption merits, the factual record Kalshi has built in Montana creates additional pressure on any state considering a similar strategy.
The CFTC’s April 30 comment period on prediction market regulation remains open. The litigation is moving faster than the rulemaking. Operators, exchanges, compliance counsel, and anyone with event contract exposure should be watching both tracks.
De Silva Law Offices has published more than a dozen articles analyzing the regulatory framework governing event contracts and prediction markets. The full series is available on our Event Contracts page.
R. Tamara de Silva is the founder and managing attorney of De Silva Law Offices LLC, a boutique financial regulatory law firm in Chicago. The firm advises designated contract markets, introducing brokers, fund operators, and fintech companies on SEC, CFTC and NFA compliance, derivatives regulation, and the prediction markets. For inquiries, contact tamara@desilvalawoffices.com or 312-810-8100.
SOURCES
[1] KalshiEX LLC v. Flaherty, No. 25-cv-02152-ESK-MJS, aff’d, 2026 WL 924004 (3d Cir. Apr. 6, 2026).
[2] Order, KalshiEX LLC v. Johnson, Case No. 2:26-cv-01715-MTL, ECF No. 65 (D. Ariz. Apr. 10, 2026).
[3] Complaint, KalshiEX LLC v. Knudsen et al., Case No. CV-26-28-H-JTJ (D. Mont. Apr. 14, 2026).
[4] United States v. Arizona, Case No. 2:26-cv-02246 (D. Ariz. Apr. 2, 2026); United States v. Connecticut, Case No. 3:26-cv-00498; United States v. Illinois, Case No. 1:26-cv-03659 (N.D. Ill. Apr. 2, 2026).
[5] KalshiEX LLC v. Martin, 793 F. Supp. 3d 667 (D. Md. 2025), appeal docketed, No. 25-1892 (4th Cir.).
[6] KalshiEX LLC v. Hendrick, 2025 WL 3286282 (D. Nev. Nov. 24, 2025), appeal docketed, No. 25-7516 (9th Cir.).
[7] KalshiEX LLC v. Schuler, 2026 WL 657004 (S.D. Ohio Mar. 9, 2026), appeal docketed, No. 26-03196 (6th Cir.).
[8] KalshiEX v. Orgel, No. 3:26-cv-00034, 2026 WL 474869 (M.D. Tenn. Feb. 19, 2026).
[9] Amicus Brief of the CFTC, North American Derivatives Exchange Inc. v. Nevada, No. 25-7187 (9th Cir. Feb. 17, 2026).
[10] Anthony M. Diercks, Jared Dean Katz, and Jonathan H. Wright, “Kalshi and the Rise of Macro Markets,” Finance and Economics Discussion Series Paper 2026-010, Board of Governors of the Federal Reserve System (Feb. 18, 2026), available at https://www.federalreserve.gov/econres/feds/kalshi-and-the-rise-of-macro-markets.htm