Three Tribes Sue Kalshi And Robinhood, Ask Court To Stop Sports Betting On Their Lands
Kalshi and Robinhood are facing a new legal challenge in federal court.
A trio of tribes filed a lawsuit on Tuesday asking a court to stop Kalshi and Robinhood from offering sports betting on their reservations. The lawsuit was filed in the US District Court for the Northern District of California.
Attorney Daniel Wallach was the first to report the existence of the lawsuit on Twitter.
So far, Kalshi has faced challenges to its business model under various state laws. This time, the Indian Gaming Regulatory Act is taking center stage.
From the complaint:
This is an action brought by three (3) federally recognized Indian Tribes, the Blue Lake Rancheria, the Chicken Ranch Rancheria of Me-Wuk Indians, and the Picayune Rancheria of the Chukchansi Indians (collectively, the “Tribes”), seeking a preliminary and permanent injunction against the defendants to prevent them from engaging in illegal sports gambling on the Tribes’ respective reservations in direct violation of the Indian Gaming Regulatory Act…
You can see the 71-page complaint from the three tribes below:
Should the tribes prevail, it could set up a dynamic where Kalshi might have to cease offering sports event trading at least on tribal lands in California, and perhaps around the country. That would require geolocation technology not currently being employed by Kalshi.
The template laid out by these three tribes in California could also be employed by tribes in other states, in theory.
Kalshi is involved in three different federal cases already. The prediction market platform has received cease-and-desist letters from at least seven states for allegedly offering illegal sports betting. Kalshi has sued three of them to prevent enforcement of those orders. So far, Kalshi has won preliminary injunctions in two cases (Nevada and New Jersey) and is awaiting an initial verdict in the other (Maryland). Robinhood offers some of Kalshi’s sports betting contracts on its platform around the country.
The tribes’ prayer for relief
From the lawsuit:
That the Court declare Kalshi’s sports event contracts to be outside the permissible scope of the CEA as self-certified contracts that involve, relate to, or reference gaming in contravention of the prohibition in 17 C.F.R. § 40.11(a)(1) and, therefore, Kalshi’s contracts constitute illegal class III gaming activity in violation of 18 U.S.C. § 1166 and IGRA;
That the Court declare that Kalshi and Robinhood’s conduct is unlawful class III gaming activity in violation of 18 U.S.C. § 1166 and, therefore, subject to injunctive relief under IGRA, 25 U.S.C. § 2710(d)(7)(A)(ii);
That the Court declare that Kalshi, as a self-certifying registered entity, self-regulating the products offered on its DCM, is impermissibly regulating an area of Indian commerce, within the field of class III gaming activity in Indian country, outside the permissible scope of the CEA, where IGRA occupies the field of regulation and grants Tribes the exclusive right to regulate class III gaming activity on Indian lands;
That the Court declare that Kalshi’s gambling activities on the Tribes’ Reservations violates the Tribes’ Gaming Ordinances and constitutes an impermissible interference with the ability of the Tribes to govern themselves on their Reservations under their own laws;
That the Court preliminarily and permanently enjoin Kalshi and Robinhood from offering sports events contracts on the Tribes’ Indian lands;
That the Court declare that Kalshi and Robinhood’s joint conduct demonstrate systematic engagement in a pattern of racketeering activity in violation of RICO, 18 U.S.C. § 1962(c);
That the Tribes be awarded treble damages, costs, and attorneys’ fees
pursuant to 18 U.S.C. § 1962(c) and the Tribes’ own attorney fee ordinances; and
That the Court order injunctive relief as permitted by 15 U.S.C. §1116(a), and award damages, including disgorgement of ill-gotten gains, lost profits, costs, and attorneys’ fees, as permitted by 15 U.S.C. § 1117(a); and
That the Court grants such other and further relief as may be deemed
appropriate.
Highlights from the filing
These are all direct citations:
Kalshi will claim that it is not offering sports gambling. Kalshi will tell the Court that it is a Designated Contract Market, regulated exclusively by the Commodities Futures Trading Commission (“CFTC”), and is merely operating a “prediction market” that permits the buying and selling of “commodities contracts,” or swaps on sporting events. While masquerading as novel commodities and futures products, these event contracts are, substantively, nothing more than illegal, unregulated wagers on the outcomes of sporting events:
Contrary to Kalshi’s assertions, Kalshi is engaging in sport gambling as defined by the IGRA and the Tribes’ Compacts, Procedures, and Ordinances. Therefore, the Tribes seek an order from the Court enjoining Kalshi from conducting its illegal sports gambling operation.
In addition, the Tribes seek a permanent injunction enjoining Kalshi’s illegal gambling on Indian lands because such gaming is currently unregulated, violates the State’s Constitution and penal code provisions, and directly interferes with the ability of the Tribes to govern themselves under their own laws on their Reservations — land owned by the United States of America in trust for the Tribes.
The federal regulations adopted by the NIGC, which implement IGRA,
specifically state that class III gaming includes “[a]ny sports betting and pari-mutuel wagering including but not limited to wagering on horse racing, dog racing or jai alai.” 25 C.F.R. § 502.4 (c).
While federal regulations define class III gaming as including all house banked games, 25 C.F.R. § 502.4 (a), the regulations separately state that sports betting constitutes class III gaming without reference to whether the wagering is house banked. 25 C.F.R. § 502.4 (c).
Thus, sports betting constitutes a class III gaming activity regardless of whether the wager is made against the house or against other bettors.
Under IGRA, in order for class III gaming to be conducted on Indian lands: (1) the tribe must have adopted a tribal ordinance that authorizes the playing of the class III games and the ordinance must have been approved by the Chairman of the NIGC (the federal regulatory agency created under IGRA); (2) the state in which the class III gaming will be conducted must “permit” such gaming for any purpose by any person, organization, or entity; and (3) the class III gaming must be conducted in conformance with a Tribal-State compact entered into by the Indian tribe and the state, pursuant to IGRA. 25 U.S.C. § 2710(d)(1). …
Gaming conducted by any person or entity on Indian lands that is not
authorized by a tribal-state class III gaming compact violates IGRA and federal and state criminal law.
By making its sports wagering contracts available on the Tribes’ Reservations, and offering for play to the general public the class III game of sports betting, Kalshi violates the Tribes’ Compacts and Procedures, Gaming Ordinances, and Gaming Commissions regulations, and directly interferes with and impairs the Tribes’ sovereign right to regulate gaming on their Reservations.
While gambling via an event contract on next year’s rainfall measures allows a wheat farmer to hedge against the risk of a low production year in the event of a lack of rain, betting on whether the 49ers will win the Super Bowl serves no hedging or other economic purpose. Nor does it perform any price discovery function on an underlying commodity. It is simply gambling on sports. And it is offered, unabashedly, by Kalshi, to the public, as such, even within states and Indian reservations that strictly prohibit sports betting.
In resorting to this legal fiction, Kalshi seeks to blur the distinction between careful minimization and allocation of market risk and what, in reality, amounts to unregulated sports gambling, to such an extent that the preexisting regulatory regime that distinguishes futures from off-exchange betting cannot restrict their business.
Defendants, by and through the Gaming Racket described herein, have knowingly conducted, financed, managed, supervised, directed, or owned all or part of an illegal gambling business, as defined by 18 U.S.C. § 1955, that violates California Penal Code § 337a, which prohibits various forms of bookmaking and wagering including sportsbook.
