KalshiEX LLC v. Johnson et al

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WO
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA
KalshiEX LLC, et al.,
Plaintiffs,
v.
Jackie Johnson, et al.,
Defendants.
No. CV-26-01715-PHX-MTL
ORDER
Technology often sprints faster than the law can keep pace. Tapping on a
smartphone to trade on the outcome of real-world events is a recent innovation. Now,
existing state regulatory structures meet new markets they never contemplated. This case
asks whether the Commodity Exchange Act protects modern prediction markets or if they
are unlawful under Arizona’s gambling laws. Before the Court can answer that question, it
must address certain threshold issues concerning the limits of federal judicial power over
state court proceedings.
I. BACKGROUND
A. Events Giving Rise to this Action
Plaintiff KalshiEX LLC (“Kalshi”) operates an online prediction market where
users can buy and sell “event contracts” based on the outcome of future events, such as
elections and sporting events. (Doc. 1 ¶ 23.) In 2020, Kalshi registered as a designated
contract market (“DCM”) with the Commodity Futures Trading Commission (“CFTC”)
under the Commodity Exchange Act (“CEA”). (Id. ¶ 54.)
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Arizona is one of several states that have sought enforcement against Kalshi for
purported violations of state gambling laws. The Arizona Attorney General and
Department of Gaming (“Department”) began investigating Kalshi in early 2025. (Doc. 20
at 2.) In May 2025, the Department sent a cease-and-desist letter to Kalshi, “requir[ing]
that Kalshi cease gambling operations in Arizona.” (Doc. 1-2 at 2-3.) The Department also
sent a letter to the CFTC, stating that DCMs’ offering of certain contracts in Arizona
“amounts to illegal gambling in Arizona.” (Doc. 11-2 at 9.) The letter criticizes “[t]he
CFTC’s inaction in enforcing its own rules.” (Id. at 12.)
Counsel for Kalshi and the Department met on June 10, 2025. (Doc. 20 at 3.) What
happened is disputed. Kalshi asserts that “Kalshi and the Arizona Attorney General’s
Office agreed that neither party would bring judicial proceedings against the other without
providing advance notice.” (Doc. 17 at 3.) The Department stated that it could provide
advance notice to Kalshi of any forthcoming enforcement action, so long as Kalshi agreed
to provide advance notice before filing a preemptive suit. (Id. at 6.) State officials deny
Kalshi’s account and claim that the parties discussed the length of any potential notice
period, without reaching an agreement. (Doc. 20 at 3.)
State officials continued their investigation, including an investigator placing bets
on the platform between December 2025 and February 2026.
On March 11, 2026, Kalshi emailed the Department threatening suit against Arizona
state officials absent an agreement by noon the next day “not to initiate an enforcement
proceeding against Kalshi until after the Ninth Circuit issues a final decision in the pending
appeals.” (Doc. 11-2 at 16.) The Department did not respond, so Kalshi filed suit. (Doc. 1.)
Kalshi’s suit against Arizona state officials is one of many preemptive actions
brought against several states, seeking to enjoin them from enforcing their gambling laws
on the basis that the CFTC has exclusive regulatory jurisdiction over Kalshi. See, e.g.,
KalshiEX, LLC v. Hendrick, No. 2:25-cv-00575 (D. Nev. Mar. 28, 2025); KalshiEX LLC
v. Martin, No. 1:25-cv-01283 (D. Md. Apr. 21, 2025). Some federal courts have granted
the requested injunctive relief; other courts have not. Compare KalshiEX LLC v. Orgel,
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No. 3:26-cv-00034, 2026 WL 474869 (M.D. Tenn. Feb. 19, 2026), with KalshiEX LLC v.
Schuler, No. 2:25-cv-01165, 2026 WL 657004 (S.D. Ohio Mar. 9, 2026).
On April 6, 2026, the Third Circuit held Kalshi is entitled to a preliminary injunction
because the CEA preempts state gambling laws, as applied to Kalshi. KalshiEX LLC v.
Flaherty, — F.4th —, 2026 WL 924004 (3d Cir. Apr. 6, 2026). Thus far, the Third Circuit
is the only federal appellate court to rule on the issue. Pending on appeal at the Ninth Circuit
is KalshiEX LLC v. Assad, No. 25-7516 (9th Cir.). In Assad, Kalshi appealed a Nevada
district court’s order dissolving a preliminary injunction previously granted to Kalshi, and
it has been set for oral argument on April 16, 2026. See id. On February 12, 2026, the
CFTC filed an amicus brief in a case consolidated with Assad, arguing that the CFTC has
exclusive jurisdiction to regulate DCMs. (Doc. 17 at 7.)
B. Statutory Basis of Suit
In its Complaint, Kalshi alleges that it is subject to the CFTC’s exclusive jurisdiction
pursuant to the CEA, 7 U.S.C. § 2(a). (Doc. 1 ¶ 2.) Kalshi argues that the CEA preempts
Arizona’s gambling regulations under principles of express preemption, field preemption,
and conflict preemption. (Id. ¶ 4.)
1. The Commodity Exchange Act
The CEA regulates the trading of commodity futures, which are contracts to trade a
commodity at a predetermined price on a future date. 7 U.S.C. §§ 1, et seq. Congress
enacted the CEA in 1936. See Pub. L. No. 74-675, 49 Stat. 1491 (1936). Much later, in
1974, Congress established the CFTC and amended the CEA to cover non-agricultural
commodity and derivative contracts. See Pub. L. No. 93-463, 88 Stat. 1389 (1974). “A
derivative is a financial instrument or contract with a price that is directly dependent on the
value of one or more underlying assets.” KalshiEX LLC v. Flaherty, No. 25-cv-02152, 2025
WL 1218313, at *1 (D.N.J. Apr. 28, 2025) (citing KalshiEX LLC v. CFTC, No. 23-03257,
2024 WL 4164694, at *1 (D.D.C. Sep. 12, 2024), stay denied, 119 F.4th 58 (D.C. Cir.
2024)), aff’d, — F.4th —, 2026 WL 924004 (3d Cir. Apr. 6, 2026).
The CEA grants the CFTC “exclusive jurisdiction” to regulate commodities and
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futures on designated exchanges. 7 U.S.C. § 2(a)(1)(A). As Kalshi did, an entity must
receive approval from the CFTC to become a DCM subject to operate under the regulatory
oversight of the CFTC. Id. §§ 2(e), 7(a); 17 C.F.R. §§ 38.1, 38.3(a).
Following the 2008 financial crisis, Congress enacted the Dodd-Frank Wall Street
Reform and Consumer Protection Act (“Dodd-Frank Act”), which amended Section 2(a)
of the CEA to include “swaps” under the CFTC’s exclusive jurisdiction. See Pub. L.
No. 111-203, tit. VII, pt. II, 124 Stat. 1376, 1658-754 (2010). Swaps are:
any agreement, contract, or transaction . . . that provides for any purchase,
sale, payment, or delivery . . . that is dependent on the occurrence,
nonoccurrence, or the extent of the occurrence of an event or contingency
associated with a potential financial, economic, or commercial consequence.
7 U.S.C. § 1a(47)(A), (A)(ii).
The Dodd-Frank Act also created a “Special Rule” addressing “event contracts,”
defined as “agreements, contracts, transactions, or swaps in excluded commodities that are
based upon the occurrence, extent of an occurrence, or contingency . . . by a designated
contract market.” Id. § 7a-2(c)(5)(C)(i). An “excluded commodity” is “an occurrence,
extent of an occurrence, or contingency . . . that is . . . (I) beyond the control of the parties
to the relevant contract, agreement, or transaction; and (II) associated with a financial,
commercial, or economic consequence.” Id. § 1a(19)(iv). The Special Rule authorizes the
CFTC to review certain event contracts and prohibit their exchange if they are determined
“to be contrary to the public interest.” Id. § 7a-2(c)(5)(C)(i)-(ii). The CEA provision
granting the CFTC “exclusive jurisdiction” over certain financial instruments includes
swaps, but not event contracts. Id. § 2(a)(1). At issue in this case is whether the event
contracts Kalshi offers are “swaps” and therefore subject to the CEA’s grant of exclusive
jurisdiction to the CFTC.
2. Arizona’s Regulatory Framework
Three years after the United States Supreme Court’s decision recognizing states’
authority to regulate gambling in Murphy v. NCAA, 584 U.S. 453 (2018), the Arizona
Legislature passed the 2021 Gaming Act. See Act of Apr. 15, 2021, 2021 Ariz. Sess. Laws
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ch. 234 (codified at Ariz. Rev. Stat. §§ 5-1301 et seq.). The Act authorizes event wagering,
so long as it is conducted within the Act’s regulatory parameters. Ariz. Rev. Stat. § 5-1303.
Under the Gaming Act, “event wagering” is:
[a]ccepting wagers on sports events or other events, portions of sports events
or other events, the individual performance statistics of athletes in a sports
event or combination of sports events or the individual performance of
individuals in other events or a combination of other events by any system
or method of wagering, including in person or over the Internet through
websites and on mobile devices.
Id. § 5-1301(4)(a). A “[w]ager” is defined as “risking . . . something of value for the
opportunity to obtain a benefit from a game or contest of chance or skill or a future
contingent event.” Id. § 13-3301(6).
To conduct event wagering, an entity must apply for and receive a license from the
Department. Id. § 5-1303(A). Licensed event wagering operators are subject to a broad
regulatory framework which includes, for example, prohibiting the licensure of an entity
with insider knowledge who could influence the outcome of an event. See
id. §§ 5-1301(16), 5-1311(A).
Kalshi is not a licensed event wagering operator. (Doc. 18 at 10.)
Except for licensed and regulated gaming, it is a misdemeanor offense to participate
in event wagering “on the results of a race, sporting event, contest or other game of skill or
chance or any other unknown or contingent future event or occurrence whatsoever.” Ariz.
Rev. Stat. § 13-3305(B). It is a felony to promote gambling without a license. Id.
§ 13-3303(B).
C. Procedural History
Kalshi’s Complaint alleges that the CEA’s granting of “exclusive jurisdiction” to
the CFTC over swaps preempts Arizona from enforcing its gaming laws to prohibit its
event contracts. (See generally Doc. 1.) Defendants include Jackie Johnson, Director of the
Department, and Kristin Mayes, Attorney General for the State of Arizona (collectively,
“the State”). According to Kalshi, enforcing Arizona’s gambling laws would violate the
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Supremacy Clause of the United States Constitution, U.S. Const. art. VI, cl. 2, due to the
CFTC’s exclusive jurisdiction over DCMs. (Id. at 23-24.) Kalshi seeks a declaratory
judgment that Arizona laws purporting to regulate Kalshi’s DCM violate the Supremacy
Clause. (Id. at 25.) Kalshi also requests an injunction prohibiting Arizona from enforcing
its laws purporting to regulate Kalshi’s exchange. (Id.)
Days after filing its Complaint, Kalshi filed a motion for preliminary injunction and
temporary restraining order, seeking immediate injunctive relief against enforcement
action by the State. (Doc. 11.) At a status conference held soon thereafter, the State
announced that a twenty-count criminal information against Kalshi had been filed in
Arizona Superior Court that morning. The arraignment is set for April 13, 2026. The Court
ordered Kalshi to show cause why, under Younger v. Harris, 401 U.S. 37 (1971), it should
not abstain from hearing this case in deference to the state court proceedings. (Doc. 15.)
The Court denied Kalshi’s request for a temporary restraining order and set a hearing on
the motion for preliminary injunction and order to show cause. (Id.)
On April 2, 2026, the United States of America and the CFTC filed a Complaint
against the State of Arizona and others, arguing that the CEA preempts the State’s
enforcement of its gambling laws. See United States v. Arizona, No. 2:26-cv-02246-MTL
(D. Ariz. 2026). The Court consolidated the actions. (Doc. 37.) Kalshi then renewed its
motion for an immediate temporary restraining order. (Doc. 42.)
On April 3, 2026, the Court heard argument on Kalshi’s motions for temporary and
preliminary relief. Also addressed were issues of Younger abstention and the
Anti-Injunction Act, 28 U.S.C. § 2283.
II. DISCUSSION
A. Younger Abstention
As the Arizona Attorney General has initiated criminal proceedings against Kalshi
in Arizona Superior Court, this Court must first consider whether it must abstain under the
principles of Younger. In Younger, the United States Supreme Court held that federal courts
must abstain from interfering with state court proceedings, even in cases where federal
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subject matter jurisdiction exists. Younger, 401 U.S. at 43-54. The holding is grounded in
the notions of equity, comity, and federalism, all of which safeguard “a system . . . in which
the National Government, anxious though it may be to vindicate and protect federal rights
and federal interests, always endeavors to do so in ways that will not unduly interfere with
the legitimate activities of the States.” Id. at 44.
At the beginning of the short history of the case before this Court, the United States
was not a party. The United States has since sued the State of Arizona, the Arizona Attorney
General, and the Director of the Department, and that suit has been consolidated with this
case. (Doc. 37.) The presence of the federal sovereign is determinative in that it forecloses
Younger abstention.
The Ninth Circuit addressed this issue in United States v. Morros, 268 F.3d 695,
699, 707 (9th Cir. 2001), where the United States sued in federal court contending that a
Nevada law, as administered by the state engineer, was preempted under the Supremacy
Clause. It held that the policy rationale underlying Younger—”avoid[ing] unnecessary
conflict between state and federal governments”—”lacks force where the United States is
a litigant.” Id. (citation modified). In such situations, Younger abstention is inappropriate.
Id. The Northern District of California applied the same rule in Yurok Tribe v. U.S. Bureau
of Reclamation, 654 F. Supp. 3d 941, 959 (N.D. Cal. 2023), finding Younger abstention
unavailable where the United States’ crossclaim against a state agency turned on whether
a state water agency’s order was preempted by the Endangered Species Act.
As in Morros, the presence of a federal preemption claim, asserted by the United
States, makes the application of Younger abstention “disingenuous.” Id.; Morros, 268 F.3d
at 708. The holding in Morros applies with full force here because, consistent with Morros
and Yurok Tribe, the dispute turns on preemption. In their Complaint, the United States and
the CFTC ask this Court to “enter a judgment declaring that the challenged provisions, or
any other state laws pertaining to gambling or wagering, as applied to CFTC-Designated
Contract Markets, violate the Supremacy Clause and are therefore preempted,
unconstitutional, and invalid.” United States v. Arizona, 2:26-cv-02246-MTL, Doc. 1
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at 30-31 (D. Ariz. Apr. 2, 2026). The United States thus asserts “a superior federal interest
against a state, [so] the forum of choice for the federal government is the federal court.”
Morros, 268 F.3d at 708.
Although this case does not involve the same decades-long dispute between state
and federal sovereigns involved in Morros, the federal-state conflict here is no less
substantial. Prediction market operators have haled numerous state regulators into court to
challenge state enforcement, and the United States has now filed its own action asserting
exclusive federal authority over DCMs. Morros recognizes that such a direct clash between
the federal government and states’ competing claims to regulatory authority involves
“substantial conflict and friction.” Id. Where that friction is “inevitable,” as it is here, the
Court acknowledges that the federal government “has a great interest in having the federal
court conduct the preemption analysis,” and this Court must defer to the United States’
choice of forum. Id. at 708-09. This Court will not abstain under Younger.
B. Anti-Injunction Act
Kalshi requests that this Court enter a preliminary injunction enjoining the criminal
prosecution of Kalshi. Generally, this Court’s analysis as to whether preliminary relief is
warranted would proceed under the factors set forth in Winter v. Natural Resources
Defense Council, Inc., 555 U.S. 7, 24 (2008). But the Court must determine the threshold
question of whether the requested injunctive relief is barred by the Anti-Injunction Act,
codified at 28 U.S.C. § 2283.*
The Anti-Injunction Act (“AIA”) represents a longstanding limitation on federal
court remedies that may interfere with state judicial proceedings. Chick Kam Choo v. Exxon
Corp., 486 U.S. 140, 142 (1988). The AIA provides:
A court of the United States may not grant an injunction to stay proceedings
in a State court except as expressly authorized by Act of Congress, or where
necessary in aid of its jurisdiction, or to protect or effectuate its judgments.
28 U.S.C. § 2283.
* The Court addresses only whether Kalshi has met the standard for preliminary injunctive
relief. At this stage, the Court does not pass on the ultimate question of whether a
permanent injunction may issue.
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The AIA imposes “an absolute prohibition against any injunction of any state-court
proceedings, unless the injunction falls within one of the three specifically defined
exceptions in the Act.” Vendo Co. v. Lektro-Vend Corp., 433 U.S. 623, 630 (1977)
(plurality opinion). “Any doubts as to the propriety of a federal injunction against state
court proceedings should be resolved in favor of permitting the state courts to proceed in
an orderly fashion to finally determine the controversy.” Atl. Coast Line R.R. Co. v. Bhd.
of Locomotive Eng’rs, 398 U.S. 281, 297 (1970).
1. The Requested Relief
The precise nature of the relief Kalshi seeks has been the subject of much confusion.
Before the hearing, the parties disagreed on whether Kalshi sought preliminary relief that
would halt the state court proceedings. This stemmed from Kalshi’s statement that, “if this
Court grants Kalshi the relief it seeks, the result would not be to stay or block the state-court
proceedings.” (Doc. 26 at 3.) The State understood this as a concession that Kalshi is “not
seeking to stay or enjoin the state court proceedings.” (Doc. 42-1 at 3.) Kalshi, however,
“emphatically dispute[s] that there has been any such concession.” (Id.) Kalshi maintains
that it does not seek an injunction against the state court itself, but “Kalshi seeks to restrain
‘state executive officials from enforcing state laws that are contrary to federal law,’ as well
as a ‘declaration’ that state law is preempted.” (Doc. 26 at 2.)
Kalshi’s Complaint requests a declaratory judgment that the CEA preempts
Arizona’s gaming laws. (See Doc. 40 at 3 (“[T]he AIA does not apply to declaratory
judgments, and Kalshi has also sought that form of relief.”).) The Court will not issue a
declaratory judgment at this stage. The request is premature, since a declaratory judgment
is a final decision on the merits and is not appropriately issued as preliminary relief.
Compare 28 U.S.C. § 2201(a) (providing that a declaratory judgment “shall have the force
and effect of a final judgment or decree and shall be reviewable as such”), with id.
§ 1292(a) (listing courts’ rulings on injunctions, but not declaratory judgments, as
interlocutory decisions reviewable by the courts of appeals).
From what the Court can discern, Kalshi alternatively seeks a finding of preemption
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as part of the likelihood of success factor for a preliminary injunction. Kalshi urges this
Court to focus on the date it filed its motion for preliminary relief, when the requested
preliminary injunction would operate prospectively to restrain only future enforcement
actions, since there were no pending state court proceedings to enjoin. (Doc. 40 at 2.)
Kalshi argues the injunction falls outside the AIA’s bar on “injunction[s] to stay
proceedings.” (Doc. 26 at 2); 28 U.S.C. § 2283. To issue the requested preliminary
injunction, this Court must find that Kalshi is likely to succeed on its claim that the CEA
preempts state law. Winter, 555 U.S. at 20. Kalshi appears poised to invoke that preemption
finding in state court for its preclusive effect. (Doc. 40 at 2.)
The Court is not persuaded. For one, if this Court did grant an injunction against
prospective enforcement, it is doubtful that the Court’s finding on the likelihood of success
on its preemption claim would have preclusive effect in state court. “[I]nterlocutory
injunctive relief does not ordinarily have preclusive effect.” Canez v. Guerrero, 707 F.2d
443, 446 (9th Cir. 1983) (citing 18 C. Wright, A. Miller, & E. Cooper, Federal Practice
and Procedure § 4445 (1981 & Supp. 1983)); see also Starbuck v. City & County of San
Francisco, 556 F.2d 450, 457 n.13 (9th Cir. 1977) (“[G]ranting a preliminary
injunction . . . is not a final judgment sufficient for collateral estoppel purposes.”).
Even assuming a preemption determination could be invoked in state court for its
preclusive effect, Kalshi has not sufficiently demonstrated that the Court may issue an
injunction against future enforcement. Kalshi has offered no evidence that the State will
commence any further enforcement proceeding beyond the pending criminal prosecution.
The threat of future injury cannot be “conjectural or hypothetical” but must be “certainly
impending” to constitute an injury in fact for injunctive relief purposes. Davidson v.
Kimberly-Clark Corp., 889 F.3d 956, 967 (9th Cir. 2018); see also Am. Trucking Ass’ns,
Inc. v. City of Los Angeles, 559 F.3d 1046, 1052 (9th Cir. 2009) (“[A]n injunction cannot
issue merely because it is possible that there will be an irreparable injury to the plaintiff; it
must be likely that there will be.”) (citing Winter, 555 U.S. at 22). Without demonstrating
that future enforcement is imminent, the Court cannot grant a preliminary injunction
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against the State’s speculative future enforcement actions. It would therefore be
inappropriate to issue an injunction restraining the State’s future enforcement, as well as
any declaration couched within the analysis supporting the issuance of that injunction.
More plainly, Kalshi states it is requesting an injunction that “restrain[s] ‘state
executive officials from enforcing state [gambling] laws.’” (Doc. 26 at 2.) It makes no
difference whether the requested relief is directed against the state court or the state
officials prosecuting the case, as the AIA treats the two the same. See L.A. Mem’l Coliseum
Comm’n v. City of Oakland, 717 F.2d 470, 473 (9th Cir. 1983) (holding that the AIA
“cannot be evaded by addressing the order to the parties or prohibiting utilization of the
results of a completed state proceeding”) (quoting Atl. Coast Line, 398 U.S. at 287). The
Court analyzes Kalshi’s request as one for a preliminary injunction imposed against those
state officials prosecuting Kalshi in state court. Indeed, when asked to definitively
articulate the requested relief on the record, Kalshi’s counsel confirmed that Kalshi
“want[s] an injunction that the State . . . cannot prosecute Kalshi.” (Hr’g. Tr. 89:4-6.)
2. Timing of the State Proceedings
Kalshi relies on Dombrowski v. Pfister, 380 U.S. 479, 484 n.2 (1965), for the
proposition that the AIA “do[es] not preclude injunctions against the institution of state
court proceedings, but only bar[s] stays of suits already instituted.” (See Doc. 26 at 4.)
Kalshi points out that the Supreme Court observed that the state court indictments were
“not obtained until after the filing of the [federal] complaint,” which meant that “no state
‘proceedings’ were pending within the intendment of [the AIA].” (Id. (alterations in
original).)
But Dombrowski involved different facts and a different procedural posture. The
district court in Dombrowski dismissed a case where plaintiffs sought to enjoin the State
of Louisiana from using its laws to purportedly harass civil rights activists. Dombrowski,
380 U.S. at 481-83. The prosecutors were alleged to have harassed the plaintiffs without
any expectation of conviction. Id. at 482. That context is much different than the State’s
enforcement of its gambling laws. Moreover, the state court indictments in Dombrowski
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“were obtained only because the District Court erroneously dismissed the complaint and
dissolved the temporary restraining order.” Id. at 484 n.2. In this case, the State filed the
criminal information against Kalshi before any proceedings in federal court on the merits.
As for Dombrowski, the Central District of California has recognized “[t]here is a
circuit split as to whether, as is the situation here, the Act applies when the federal
injunction is sought before the initiation of state court proceedings.” Monster Beverage
Corp. v. Herrera, No. 13-00786, 2013 WL 12131740, at *10 (C.D. Cal. Dec. 16, 2023). In
Barancik v. Investors Funding Corp. of New York, 489 F.2d 933, 934 (7th Cir. 1973), the
Seventh Circuit articulates one side of the split: the AIA “prohibits a federal court from
staying proceedings in a state court which were not commenced until after a motion to
enjoin the institution of such proceedings was filed.” Accord Hyde Park Partners, L.P. v.
Connolly, 839 F.2d 837, 842 n.6 (1st Cir. 1988); Nat’l City Lines, Inc. v. LLC Corp., 687
F.2d 1122, 1127 (8th Cir. 1982). Holding otherwise, the Seventh Circuit reasoned, would
provide “an absolute right to defeat a well-founded motion by taking the very step the
federal court was being urged to enjoin.” Barancik, 489 F.2d at 937. The court raises
several policy concerns, most notably asserting that its “rule has the salutary advantage of
discouraging the unseemly race to the state courthouse.” Id. at 935 n.5. Under this view,
the AIA would not bar the issuance of an injunction.
Other courts of appeals have taken the opposite position, most prominently the
Fourth Circuit. See Denny’s, Inc. v. Cake, 364 F.3d 521, 528-31 (4th Cir. 2004); accord
Standard Microsystems Corp. v. Texas Instruments, 916 F.2d 58, 61-62 (2d Cir. 1990);
Royal Ins. Co. of Am., 3 F.3d 877, 884 (5th Cir. 1993); Roth v. Bank of the Commonwealth,
583 F.2d 527, 533 (6th Cir. 1978). In Denny’s, the Fourth Circuit holds that the AIA’s
“prohibition on enjoining state court proceedings applies to any such proceeding pending
at the time the federal court acts on the request for injunctive relief, regardless of when the
state court action was filed.” Denny’s, 364 F.3d at 531. The court bases its holding on the
plain language of the AIA, concluding that “nothing in the Act confines its bar to situations
in which the federal plaintiff requests injunctive relief after the state suit has been filed.”
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Id. at 530. It also refutes the Barancik court’s policy rationale, including the court’s
statement that its rule would discourage a race to the courthouse. Id. at 531. “[B]y hinging
the applicability of § 2283 on whether the state or federal suit is commenced first, the
Barancik rule creates a race to the courthouse of its own.” Id. Under this line of authority,
it is immaterial that the State’s filing of criminal charges occurred after Kalshi’s Complaint
was filed in federal court.
The Ninth Circuit has not yet weighed in, but district courts in this Circuit have
applied the holding in Denny’s. See Monster Beverage, 2013 WL 12131740, at *10; Kag
W., LLC v. Malone, No. 15-03827, 2016 WL 3951651, at *3 (N.D. Cal. July 22, 2016);
Easterday Dairy, LLC v. Fall Line Cap., LLC, No. 22-01000, 2022 WL 17104572, at *8-9
(D. Or. Nov. 22, 2022). Resolving Kalshi’s argument requires this Court to choose between
competing interpretations of the AIA among the courts of appeal.
The Court finds that the Fourth Circuit’s interpretation is more faithful to the text of
the AIA. “If [a statute’s] language has a plain meaning or is unambiguous, the statutory
interpretation inquiry ends there.” CVS Health Corp. v. Vividus, LLC, 878 F.3d 703 (9th
Cir. 2017) (citation omitted). The AIA states that a federal court “may not grant an
injunction to stay proceedings in a State court,” unless certain exceptions apply. 28 U.S.C.
§ 2283. State proceedings must be pending at the time the Court rules, or there would be
no state proceedings to enjoin. The statutory text supplies an unequivocal prohibition
against such injunctions, and it says nothing about when the state proceedings began. At
most, the competing policy rationales cut in both directions. But policy arguments cannot
supersede the clear statutory text. Universal Health Servs., Inc. v. United States, 579 U.S.
176, 192 (2016). The text does not leave room for the judicial exception recognized by
Barancik.
The Court finds that the AIA applies so long as state proceedings are pending at the
time the Court considers the request for injunctive relief, regardless of when those
proceedings started. The AIA applies and bars preliminary injunctive relief, unless an
exception applies.
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3. Exceptions to the Anti-Injunction Act
Kalshi argues that an injunction against the state criminal proceedings falls within
two exceptions. First, Kalshi invokes the exception for proceedings “necessary in aid of
[the Court’s] jurisdiction.” (Doc. 40 at 5 (citing 28 U.S.C. § 2283).) The exception applies
where an injunction is “necessary to preserve exclusive federal jurisdiction.” Sycuan Band
of Mission Indians v. Roache, 54 F.3d 535, 540 (9th Cir. 1994). In Sycuan, the Ninth Circuit
reviewed a district court’s issuance of a permanent injunction. Id. at 537, 540. The district
court had determined that criminal enforcement of the state’s laws prohibiting slot
machines was preempted by the Indian Gaming Regulatory Act. Id. at 540. Here, by
contrast, the Court is presented only with a request for preliminary injunctive relief. At this
stage, the Court’s inquiry is limited to whether Kalshi has shown a likelihood of success
on its preemption claim, not a definitive determination as to whether preemption exists.
Absent a merits determination on a full record, the Court cannot conclude that federal
jurisdiction is exclusive. The “necessary in aid of jurisdiction” exception therefore does
not apply.
Although not found in the text of the AIA, Kalshi points to an exception to the AIA
for injunctions sought by the federal government. (Doc. 40 at 5-6.) The AIA “does not
apply to injunctions issued at the request of the United States or administrative agencies
enforcing applicable federal law.” SEC v. Wencke, 622 F.2d 1363, 1368 (9th Cir. 1980);
see also Mitchum v. Foster, 407 U.S. 225, 235-36 (1972) (stating the AIA “permits a
federal injunction of state court proceedings when the plaintiff in the federal court is the
United States itself, or a federal agency asserting ‘superior federal interests’”) (citations
omitted). Kalshi argues that, because this case has been consolidated with a suit brought
by the United States and CFTC, the AIA does not apply. (Doc. 40 at 5-6.)
The exception for injunctions sought by the United States does not apply because
the federal government has not sought the preliminary injunction. The ultimate relief
sought by the federal government and Kalshi are similar. The federal government requests
“a permanent injunction that prohibits Defendants . . . from enforcing the challenged
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provisions or any other state laws pertaining to gambling or wagering, as applied to
CFTC-Designated Contract Markets.” United States v. Arizona, No. 2:26-cv-2246-MTL,
Doc. 1 at 32 (D. Ariz. Apr. 2, 2026). Kalshi asks this Court to enjoin the State’s prosecution
based on the same finding of preemption. (See Doc. 40 at 2, 5-6.) But the exception to the
AIA applies only “to injunctions issued at the request of the United States,” Wencke, 622
F.2d at 1368, and the question before this Court is whether to grant Kalshi’s request for a
preliminary injunction. Although the basis for granting Kalshi preliminary injunctive relief
would be largely identical to the basis for granting a permanent injunction, the federal
government has not yet requested the preliminary relief that this Court is assessing. So the
Court will not apply the exception here.
The Court finds that the AIA applies and the preliminary injunction Kalshi requests
does not fall within any exception to the application of the AIA. The Court is barred by
statute from issuing the injunction, so it must deny Kalshi’s requests for preliminary relief.
III. CONCLUSION
Accordingly,
IT IS ORDERED that the order for Kalshi to show cause why this Court should
not abstain under the doctrine of Younger abstention (Doc. 15) is DISCHARGED.
IT IS FURTHER ORDERED that Kalshi’s Motion for Preliminary Injunction
(Doc. 11) is DENIED.
IT IS FINALLY ORDERED that Kalshi’s Motion for Immediate Temporary
Restraining Order (Doc. 42) is DENIED.
Dated this 8th day of April, 2026.
/s/ Michael T. Liburdi
United States District Judge
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