---
type: source
title: "Third Circuit Affirms Kalshi's Preliminary Injunction in KalshiEX v. Flaherty — Field and Conflict Preemption for DCM-Listed Sports Event Contracts"
author: "Skadden Arps"
url: https://www.skadden.com/insights/publications/2026/04/third-circuit-affirms-kalshis-preliminary-injunction
date: 2026-04-06
domain: internet-finance
secondary_domains: []
format: legal-analysis
status: processed
processed_by: rio
processed_date: 2026-05-10
priority: high
tags: [prediction-markets, cftc, preemption, kalshi, third-circuit, event-contracts, dcm, securities-regulation]
intake_tier: research-task
extraction_model: "anthropic/claude-sonnet-4.5"
---

## Content

The Third Circuit affirmed Kalshi's preliminary injunction (2-1) against New Jersey gaming enforcement in KalshiEX LLC v. Flaherty. The majority held that the Commodity Exchange Act likely preempts state gambling laws for sports event contracts traded on CFTC-registered Designated Contract Markets.

**Two grounds for preemption:**
1. **Field preemption** — CEA grants exclusive CFTC jurisdiction over swaps traded or executed on a DCM
2. **Conflict preemption** — Allowing states to prohibit sports event contracts on DCMs would undermine the federal purpose of eliminating a patchwork of state regulation

**Key scope limitation:** The preemption analysis applies specifically to "regulation of trading on a DCM." The court's field preemption analysis depends explicitly on DCM-listed status. Non-DCM markets are outside the preemption analysis.

**Dissent (Judge Roth):** States have historical authority to regulate gambling; CEA shouldn't preempt that authority.

**Important caveat:** This is a **preliminary injunction** ruling, not final merits. The standard was only "a reasonable chance of winning on the merits." The case returns to district court for full adjudication.

**Regulatory context:** Multiple law firm analyses published after ruling (Prokopiev, Holland & Knight, Vinson & Elkins, Past The Wire). All confirm the DCM-scope limitation.

## Agent Notes
**Why this matters:** This is the first circuit court ruling fully adjudicating the Kalshi preemption question. It explicitly scopes field preemption to DCM-listed markets — directly supporting the TWAP endogeneity claim's argument that MetaDAO's non-DCM markets are structurally outside the enforcement zone. This ruling ALSO means non-DCM markets can't claim the preemption shield, but since enforcement targets are DCM-focused, this doesn't create new exposure.

**What surprised me:** The explicit scope limitation is more favorable for MetaDAO's position than I expected. The Third Circuit didn't write a broad field preemption ruling — it anchored it to DCM listing. This matches the Prediction Market Act's DCM/SEF scope limitation from Session 40. Two independent legal sources now agree: the DCM listing requirement is load-bearing for regulatory coverage.

**What I expected but didn't find:** Any discussion of non-DCM markets, DAO governance markets, or blockchain-native prediction mechanisms. The analysis is entirely about DCM-listed platform contracts. 41 consecutive sessions of governance market gap continues.

**KB connections:**
- [[MetaDAO conditional governance markets may fall outside the CFTC event contract definition because TWAP settlement against internal token price is endogenous rather than an external observable event]] — this ruling strengthens the scope qualification (DCM listing is the regulatory dividing line)
- [[futarchy-governed entities are structurally not securities because prediction market participation replaces the concentrated promoter effort that the Howey test requires]] — orthogonal but related regulatory track
- [[the DAO Reports rejection of voting as active management is the central legal hurdle for futarchy because prediction market trading must prove fundamentally more meaningful than token voting]] — separate securities law track, unaffected by this ruling

**Extraction hints:**
- New claim: "Third Circuit field preemption in KalshiEX v. Flaherty is explicitly scoped to DCM-listed contracts, structurally excluding non-DCM governance markets from both the enforcement zone and the preemption shield"
- Enrichment to TWAP endogeneity claim: the DCM-scope limitation from three independent sources (Third Circuit ruling, Prediction Market Act S.4469, CFTC ANPRM focus) converges on the same conclusion

**Context:** This is a preliminary injunction ruling. The case will be fully adjudicated at district court. The Ninth and Fourth Circuits are both expected to rule against Kalshi, creating a genuine circuit split. SCOTUS cert near-certain.

## Curator Notes (structured handoff for extractor)
PRIMARY CONNECTION: [[MetaDAO conditional governance markets may fall outside the CFTC event contract definition because TWAP settlement against internal token price is endogenous rather than an external observable event]]
WHY ARCHIVED: Third Circuit DCM-scope limitation confirms the key regulatory dividing line for the TWAP endogeneity claim — non-DCM markets are outside both the enforcement target and the preemption analysis. This is the first circuit court authority on point.
EXTRACTION HINT: Focus on the scope limitation, not the overall preemption holding. The extractor should add this as evidence to the TWAP endogeneity claim and consider whether a separate "circuit split trajectory" claim is warranted.
