Ninth Circuit Rejects Federal Jurisdiction for Kalshi and Polymarket

The U.S. Ninth Circuit Court of Appeals has delivered a significant legal setback to prediction market platforms Kalshi and Polymarket, denying their request to halt enforcement actions initiated by state authorities. The ruling, issued on May 22, 2026, ensures that lawsuits filed by Nevada and Washington state will proceed in state courts rather than being moved to a federal venue. This decision underscores the ongoing jurisdictional tensions between decentralized or digital prediction markets and traditional state-level gambling regulations.

Failure to Establish Irreparable Harm

The three-judge panel determined that the companies failed to meet the high legal threshold required to suspend the state-level proceedings. Specifically, the court ruled that Kalshi and Polymarket did not demonstrate that facing litigation in state courts would result in irreparable harm to their business operations or legal standing. The platforms had sought a stay on the lawsuits, which allege that the companies have been operating without the necessary licenses and facilitating illegal gambling activities under state statutes.

The court identified several key reasons for the rejection:

• Lack of federal question jurisdiction in the initial filings.
• The primary allegations are rooted in state gaming laws.
• The principle of federalism supports state autonomy in enforcement.

Jurisdictional Limits and Federal Preemption

A central component of the companies' argument was the assertion of federal law preemption, suggesting that federal oversight of financial markets should supersede state-level gambling classifications. However, the Ninth Circuit clarified that such a claim serves only as a legal defense and does not automatically grant federal courts jurisdiction over the matter. Federal preemption occurs when a federal law takes precedence over a conflicting state law, but it rarely serves as the sole basis for moving a case to federal court.

The court emphasized that federalism and the principle of comity support allowing states to enforce their gaming regulation laws in their own state courts.

Implications for Prediction Markets

This ruling marks a pivotal moment for the Web3 and decentralized finance (DeFi) sector, particularly for platforms utilizing blockchain technology to facilitate event-based betting. While Polymarket has gained international prominence for its high volume in political and economic forecasting, the inability to move these cases to federal court leaves such platforms vulnerable to a patchwork of differing state regulations.

The decision reinforces the authority of individual states to regulate prediction markets under the umbrella of traditional gambling and licensing requirements. As the cases return to the state courts of Nevada and Washington, the industry will be closely watching for further developments that could set a precedent for how digital asset-linked betting platforms are treated across the United States.