A judge from the United States District Court for the District of Minnesota has granted a request for a preliminary injunction that will keep Minnesota officials from enforcing many tenets of a law that targets the operations of prediction market exchanges in the state. Judge Katherine Menendez released the order on Monday to “preserve the status quo until the merits’ of Plaintiffs’ claims can be fully adjudicated,” finding that the several plaintiffs in the consolidated trio of cases had adequately made the case that such protection was necessary to prevent irreparable harm and that they properly demonstrated a reasonable chance of success in trial.

On that probable chance of success, Menendez pointed to the plaintiffs’ claims of express preemption of Minnesota law by federal law on the matter. Menendez did concede, though, that such success might only be partial.

Those statements are a succinct encapsulation of the judiciary as a whole in the US on the matter of whether federal statutes like the Commodity Exchange Act preempt state governments from enacting standards governing prediction market trading. Until Congress acts on the issue or the US Supreme Court weighs in, divergent and reticent opinions from the bench could proliferate.

In the order, Menendez expressed that she found “that the balance of harms and the public interest weigh in favor of entering a preliminary injunction barring enforcement of Minnesota’s prediction market statute until a final decision on the merits is reached.” The law in question was part of a larger omnibus spending package in Minnesota.

Minnesota included most of the language of a separate bill targeting prediction market operations in its most recent budget, which Gov. Tim Walz signed in May. The statute bans nearly all types of event contract trading, labeling it as illegal gambling in Minnesota.

Promotion of the exchanges also became vulnerable to civil penalties under the law. For that reason, the US Commodity Futures Trading Commission (CFTC) and the Department of Justice (DOJ) quickly sued the state, including the request for the preliminary injunction. Soon thereafter, Kalshi and Polymarket also sued Minnesota Attorney General Keith Ellison, and the court consolidated the three cases because they involve similar legal questions.

Among those legal questions is whether the Commodity Exchange Act (CEA) and other federal laws preempt state-level attempts to regulate prediction market trading. Menendez communicated that the court should be open to the possibility, but that remains a mere possibility at this point.

In the order, Menendez addresses the arguments of the plaintiffs that the CEA and Dodd-Frank Act preempt Minnesota’s statute because those federal laws define event contracts as “swaps” and give the CFTC exclusive jurisdiction over them. Menendez stated that she saw a path for those arguments to hold water in trial within the narrow scope of “the application of Minnesota’s law to many of the trades listed on Kalshi’s and Polymarket US’s platforms.”

To support that perspective, Menendez referred to the US Third Circuit Court of Appeals’ affirmation of a New Jersey district court decision to similarly enjoin officials in that state from taking action against exchange operators. She also stated a tentative opinion that the “plain language” of the CEA and Dodd-Frank make it clear that Congress gave the CFTC sole jurisdiction over financial instruments like swaps.

At the same time, Menendez also stated that “whether the Minnesota statute is expressly preempted turns on whether the state law attempts to regulate trades in event contracts that qualify as ‘swaps’ within the meaning of the CEA” and “that the Minnesota statute may not, ultimately, be preempted in all respects, even as to Kalshi and Polymarket US.” This apprehension reflects the larger legal debate in the US and a need for further intervention on the issues.

While Menendez pointed to the Third Circuit’s decision as support for the plaintiffs’ preemption claims against Minnesota’s law, a differing opinion from another circuit court muddles the waters. In April, the US Sixth Circuit Court of Appeals denied a request for injunctive relief against Ohio officials’ plans to enforce that state’s gambling laws against Kalshi.

In that opinion, the court found that the “plain language” of the CEA did not expressly bar state officials from enforcing their laws against exchange operators, as it lacked the necessary language typical of such provisions in federal law. This direct contradiction in courts is usually a call for clarification from Congress and a definitive ruling from the US Supreme Court in the absence of that clarification.

The Supreme Court could begin to wade into these murky waters soon, as New Jersey has just a few more days to file its appeal of the Third Circuit’s affirmation with that court. In the meantime, Kalshi, Polymarket, and others can continue to operate in Minnesota under the current status quo at least until Menendez’s order expires.

The post Judge Grants CFTC’s Request for Preliminary Injunction Against Minnesota Law Citing Preemption Argument appeared first on DeFi Rate.

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