Connecticut Federal Judge Slams CFTC’s Use of Emergency Powers, Says It Lacks Jurisdiction to Contradict the Courts
A Connecticut federal judge has issued the most direct judicial rebuke yet of the CFTC’s strategy for using emergency powers.
The ruling came Friday, stating that the agency lacks authority to direct Kalshi to ignore state court orders. Judge Vernon D. Oliver denied Kalshi’s motion for an injunction pending appeal in the U.S. District Court for the District of Connecticut on August 15. The denial itself is not surprising. What makes the ruling significant is one paragraph.
In addressing Kalshi’s argument that the CFTC’s August 11 emergency order created an irreconcilable conflict between federal and state law, Judge Oliver wrote: “As an administrative agency, the CFTC lacks the authority to dictate an order that conflicts with this Court’s decision.”
The CFTC has now invoked its Section 8a(9) emergency powers three times this summer, in Michigan, as well as New York, and implicitly in this Connecticut context, each time directing Kalshi to continue operating in defiance of state court orders. No court had previously said directly that the agency lacks jurisdiction to do that. Now, Judge Oliver has said it and made his stance clear.
The Preemption Battle Wages On
Judge Oliver’s ruling rests on a preliminary injunction denial issued August 10, which found Kalshi’s sports-event contracts are not swaps under the CEA and that Connecticut’s gambling laws are not preempted by federal law. The August 15 ruling on the injunction pending appeal applies a higher standard: Kalshi needed to show not just likely success on the merits but a strong showing of success. It failed on every factor.
On the merits, Oliver found Kalshi’s arguments recycled from the preliminary injunction briefing. The Second Circuit may ultimately disagree with his decision, he acknowledged, but the possibility of reversal exists in every appeal and does not justify extraordinary relief.
Regarding the CFTC emergency order, the court drew a clear distinction. The CFTC issued its market emergency directive on August 11, the day after Oliver denied the preliminary injunction. Kalshi argued the order demonstrated an irreconcilable conflict between federal and state compliance obligations, but Oliver rejected this directly. The CFTC order, he wrote, ignores both his decision and the Southern District of New York’s ruling in KalshiEX v. Williams, both of which held that state law is not preempted by federal law as applied to Kalshi’s sports-event contracts. Courts must exercise independent judgment in determining the meaning of statutory provisions under Loper Bright. The CFTC is an administrative agency. It cannot dictate an order that conflicts with a court’s decision.
Kalshi’s Emergence Powers Tactic is On The Line
The CFTC’s emergency powers strategy rests on the assumption that Section 8a(9) of the Commodity Exchange Act gives the agency authority to direct its registrants to operate normally even when state courts order them to stop. The agency has used that authority three times in rapid succession. No court had previously ruled on whether the CFTC can use that authority to override a federal court’s preliminary injunction denial.
Oliver’s ruling provides the first direct answer: it cannot.
The Second Circuit will certainly test that answer. Kalshi stated in its motion that it intends to seek an injunction pending appeal from the Second Circuit if the district court denies relief, which it has. The Second Circuit is already considering a related motion in the New York case. The Second Circuit will now be asked whether Oliver’s reading of the CFTC’s authority is correct.
If the Second Circuit agrees, the CFTC’s emergency powers tactic is effectively foreclosed, and it is back to the drawing board. An administrative agency cannot direct its registrant to violate court orders. If the Second Circuit disagrees, the constitutional standoff between the agency and state courts continues, backed by federal appellate authority.
The CFTC’s position, as Oliver noted, is that the sports-event contracts at issue are not subject to its exclusive jurisdiction if they are not swaps. That is the threshold question both Connecticut and the Southern District of New York have answered against Kalshi at the preliminary stage. The Second Circuit must now answer it for its circuit. The Sixth Circuit’s ruling on the Ohio and Tennessee appeals, which were argued July 30, is still pending.
The Map Is Getting Longer
The Connecticut ruling adds another data point to a litigation map that is now almost impossible to track without a spreadsheet. Kalshi has lost preliminary injunction motions in Connecticut, Ohio, Michigan, and Utah, where a summary judgment was granted against it. It has won preliminary injunctions in Tennessee, Arizona, and Minnesota. The Third Circuit ruled for it on preemption. Every other circuit that has engaged with the merits has gone against it.
Kalshi’s briefing in Connecticut listed the states the CFTC has sued on its behalf: Connecticut, Arizona, Illinois, New York, Wisconsin, New Mexico, Kentucky, and Rhode Island. That is eight states facing federal suits, with more state court actions pending. The constitutional structure that emerges from these simultaneous proceedings, with an administrative agency telling its registrant to defy courts while courts say the agency lacks that authority, is one that the Supreme Court is now clearly going to have to resolve.
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