---
type: source
title: "Prediction Markets v. State Gaming Laws: comprehensive preemption doctrine analysis with full case citations"
author: "Epstein Becker Green"
url: https://www.commerciallitigationupdate.com/prediction-markets-v-state-gaming-laws-the-kalshi-litigation-gamble
date: 2026-03-00
domain: internet-finance
secondary_domains: []
format: essay
status: enrichment
priority: high
triage_tag: claim
tags: [prediction-markets, preemption, litigation, CFTC, gaming, CEA, case-law, futarchy]
processed_by: rio
processed_date: 2026-03-18
enrichments_applied: ["polymarket-achieved-us-regulatory-legitimacy-through-qcx-acquisition-establishing-prediction-markets-as-cftc-regulated-derivatives.md"]
extraction_model: "anthropic/claude-sonnet-4.5"
---

## Content

Epstein Becker Green's detailed preemption doctrine analysis:

**Three Preemption Categories:**
1. **Express Preemption:** CEA "contains no such express preemption clause with respect to state gambling laws" — this avenue is closed
2. **Field Preemption:** Kalshi's primary argument — Congress granted CFTC exclusive jurisdiction over DCM transactions, leaving no room for states. This is the core battlefield.
3. **Conflict Preemption:** States argue federal law displaces state authority only where "compliance with both is impossible or where state regulation poses a clear obstacle to federal objectives"

**The Maryland vs Tennessee Split — Key Legal Distinction:**

*Maryland approach (pro-state):*
- Applied conflict preemption analysis
- Found dual compliance theoretically possible (Kalshi could get state license AND operate as DCM)
- Rejected field preemption: "Congress did not clearly intend to displace state authority over gambling"
- Citation: *KalshiEx v. Martin*, No. 1:25-cv-01283 (D. Md. Aug. 1, 2025); Fourth Circuit appeal No. 25-1892

*Tennessee approach (pro-Kalshi):*
- Found impossibility of dual compliance: federal impartial-access requirements conflict with Tennessee restrictions
- Found obstacle to federal objectives: state enforcement undermines CEA's uniform regulation objective
- Citation: *KalshiEx v. Orgel*, No. 3:26-cv-00034 (M.D. Tenn. Jan. 9, 2026)

**Additional Jurisdictions:**
- *Blue Lake Rancheria v. Kalshi*, No. 3:25-cv-06162 (N.D. Cal. July 22, 2025) — tribal case; court held IGRA doesn't apply to third-party platforms
- *Pelayo et al v. Kalshi Inc.*, No. 1:25-cv-09913 (S.D.N.Y. Nov. 26, 2025) — consumer class action alleging state gambling law violations

**Critical Legal Insight — Express Preemption Failure:**
The absence of express preemption in the CEA is significant because it means courts must construct preemption from field or conflict theories, which are inherently more uncertain. This is why different courts reach different conclusions — field and conflict preemption require judicial interpretation of congressional intent, which is always debatable.

## Agent Notes
**Triage:** [CLAIM] — "The absence of express preemption for state gambling laws in the Commodity Exchange Act creates inherent legal uncertainty for prediction markets because courts must construct preemption from field or conflict theories, which different judges interpret differently"

**Why this matters:** The express preemption gap is the structural reason for the circuit split. If Congress had included a clear statement that CFTC jurisdiction preempts state gambling laws, this litigation would be straightforward. The gap exists because when the CEA was written, nobody anticipated prediction markets. This is fixable legislatively (CLARITY Act could add express preemption) but not through litigation alone.

**What surprised me:** The Maryland "dual compliance" argument. Maryland says Kalshi could get a state gambling license AND operate as a CFTC-regulated DCM simultaneously — therefore no conflict. This is clever because it reframes the question: preemption isn't about whether the activity is federal vs state, but whether compliance with both is impossible. If Kalshi COULD get a state license, there's no impossibility conflict.

For futarchy: this matters because a futarchy governance market operating on Solana is neither seeking nor could easily obtain a gambling license in 50 states. The "dual compliance" framing works for a centralized company like Kalshi but breaks for decentralized protocols. This creates a perverse incentive: centralized prediction markets can theoretically comply with both regimes, but decentralized ones can't — making the preemption question MORE urgent for DeFi/futarchy than for Kalshi.

**KB connections:**
- The express preemption gap is the root cause of all the litigation — claim candidate
- The "dual compliance" problem for decentralized protocols is novel and not in the KB
- Connects to Ooki DAO proved that DAOs without legal wrappers face general partnership liability — same pattern of decentralized protocols facing worse legal treatment than centralized ones

**Extraction hints:** Focus on the express preemption gap and the centralized vs decentralized asymmetry in preemption analysis.

## Curator Notes
PRIMARY CONNECTION: [[futarchy-governed entities are structurally not securities because prediction market participation replaces the concentrated promoter effort that the Howey test requires]]
WHY ARCHIVED: Most detailed preemption doctrine analysis with full case citations — identifies the structural legal gap (no express preemption) driving the entire jurisdiction crisis


## Key Facts
- KalshiEx v. Martin, No. 1:25-cv-01283 (D. Md. Aug. 1, 2025) - Maryland district court case
- Fourth Circuit appeal No. 25-1892 - Maryland case on appeal
- KalshiEx v. Orgel, No. 3:26-cv-00034 (M.D. Tenn. Jan. 9, 2026) - Tennessee district court case
- Blue Lake Rancheria v. Kalshi, No. 3:25-cv-06162 (N.D. Cal. July 22, 2025) - tribal case holding IGRA doesn't apply to third-party platforms
- Pelayo et al v. Kalshi Inc., No. 1:25-cv-09913 (S.D.N.Y. Nov. 26, 2025) - consumer class action alleging state gambling law violations
