Novig launched its standalone prediction market platform last week. Three days into the launch, it had already filed lawsuits against four states.
The company sued New York just a day after it announced the nationwide launch of its CFTC-regulated platform. It has since filed lawsuits against Massachusetts, Washington, and New Mexico.
Gaming lawyer Daniel Wallach says the preemptive lawsuits are a tactic to ensure that the launch is uninterrupted. The four states have all taken action against prediction markets, including New York, which sued Kalshi for $36 billion in damages last week.
Lawsuits: A Delay Tactic
“Prospects for success may be dim in MA, NY & WA in light of recent PM court rulings favoring states, but that may be besides the point,” Wallach wrote in a post on LinkedIn.
“Preemptive federal lawsuits ensure 90+ day uninterrupted launch while allowing enough time for possible appellate reversals (CA1, CA2 & CA9 & MSJC).”
These cases predominantly involve Kalshi, with the operator appealing rulings that do not support its argument that its sports prediction markets are legal under federal law.
The CFTC has backed the company in its disputes and has also appealed a ruling in Wisconsin to the Seventh Circuit. A judge denied the CFTC’s motion for an injunction blocking the state from enforcing gambling laws against prediction markets.
Suing in Federal Courts Ties Up States
Novig has filed four lawsuits in federal court, a tactic to gain the upper hand against state authorities. Generally, states have filed lawsuits against companies in state courts, and state judges have been sympathetic to their arguments.
Federal courts may be more willing to endorse Novig and Kalshi’s claims that their sports prediction markets are governed by federal law, which preempts state gambling legislation.
“Novig has sued 4 states–New York, Massachusetts, New Mexico, and Washington. What do these states have in common? They pursued TROs & PIs vs. DCMs in state court,” Wallach noted. “Goal may be to tie up likely enforcing states in federal court.”
Kalshi moved the case in New York to federal court, but the state has filed a motion to remand its civil enforcement action back to state court, where it originally filed the complaint.
In Washington, a state judge granted the state a preliminary injunction against Kalshi in its lawsuit against the company last month. The ruling could lead the state to join Nevada and Michigan in blocking the operator’s sports markets. It also demonstrates the importance of where the original legal action is filed.
New York Case One to Watch
“The Novig case to watch, however, is the SDNY lawsuit vs. NY. It’s the only case where Novig has filed a motion for preliminary injunction to block state court enforcement,” said Wallach. “Case assigned to Analisa Torres, who recently denied Kalshi’s request for identical relief.”
Judge Torres’ denial of an injunction for Kalshi sparked the state’s lawsuit against the company.
In response to Novig’s motion for an injunction, New York Attorney General Letitia James said the company should be denied the relief. In a filing to the court, James wrote that Novig did not give any warning of its action and appealed for the court to hear its arguments against the sports trading platform.
She added that Novig “has not remotely satisfied the standard” for obtaining a temporary restraining order without New York arguing its case.
Judge Torres already rejected Kalshi’s position that its markets should be treated as swaps under the Commodity Exchange Act (CEA). She is therefore likely to side against Novig, but as Wallach points out, the company likely knows this, but is delaying any enforcement action through the lawsuits.
