Kentucky magistrate recommends sending Polymarket and Kalshi suits back to state court

Magistrate Judge Edward B. Atkins recommended on 14 October that Kentucky’s gambling lawsuit against Polymarket’s US entities return to Franklin Circuit Court, according to igaming-times.com. A similar recommendation has been reported in Kentucky’s case against Kalshi, but neither is a final decision: the assigned district judges must determine whether to adopt them.

Gambling Insider, citing filings highlighted by gaming lawyer Daniel Wallach, reported the Kalshi recommendation, according to igaming-times.com. That document was not available in the public court archive on 15 October. Both proceedings concern where Kentucky’s claims will be heard, rather than a final determination of whether the operators violated state law.

Why Atkins recommended remand

Atkins’s 14-page report in Commonwealth of Kentucky v. QCX LLC, No. 3:26-cv-00047, addresses QCX LLC, Blockratize Inc., QC Clearing LLC and QC Tech LLC, the entities behind Polymarket’s US exchange. District Judge Claria Horn Boom referred the remand motion on 1 October. Atkins rejected Polymarket’s argument that its exchange oversight obligations meant it was acting under the Commodity Futures Trading Commission (CFTC) for purposes of federal officer removal. He viewed those obligations as regulatory compliance, not assistance in performing the agency’s duties, noting a Nevada federal court’s rejection of the same argument in March.

Atkins also rejected removal under the narrow federal-question exception known as Grable: none of Kentucky’s four claims required proof under the Commodity Exchange Act (CEA). His reasoning relied on the Sixth Circuit’s 25 September decision in KalshiEX LLC v. Schuler, which held that Kalshi’s sports contracts are not swaps and that federal commodities law would not preempt state gambling law even if they were. Preemption as a defence cannot establish removal jurisdiction under Supreme Court precedent. Neither company asserted complete preemption; Atkins also recommended denying Kentucky costs and fees because the Sixth Circuit had not decided Schuler when the motion was briefed.

Kentucky’s claims and remaining federal proceedings

Attorney General Russell Coleman filed both lawsuits on 17 June. The Polymarket complaint alleges unlicensed sports wagering through two Kentucky Consumer Protection Act counts, a Loss Recovery Act count and a claim that its website and apps constitute illegal gambling devices; Polymarket removed it the next day. The Loss Recovery Act voids gambling transactions and permits the Commonwealth to recover losses. Atkins followed Judge Gregory Van Tatenhove’s March remand of a private gambling-loss case against Kalshi in treating the Act’s authorised-gambling exemption as an affirmative defence.

The separate 16-count complaint names five Kalshi entities, Robinhood Markets, Robinhood Derivatives, Webull and Coinbase Financial Markets. It seeks injunctions, civil penalties of up to $2,000 per violation and treble the money lost; the treble-damages claim can cover losses over the past five years, according to igaming-times.com. Kalshi removed the action on 19 June, with Robinhood and Coinbase consenting. That case, No. 3:26-cv-00048, is assigned to District Judge Robert E. Wier and Atkins. Parties have 14 days from service to object to the recommendations; district judges can adopt, reject or modify them and review specifically challenged portions afresh. General objections do not preserve appeal rights.

A separate federal challenge remains pending. On 23 June, the CFTC and the United States sued Kentucky, Governor Andy Beshear, Coleman and the Kentucky Horse Racing and Gaming Corporation, seeking a declaration that state gambling law is preempted for CFTC-registered exchanges. Judge S. Chad Meredith cancelled oral argument on 5 October and ordered briefs by 23 October addressing Schuler and forthcoming CFTC rulemaking. The agency proposed adding event contracts to the swap definition on 9 October; according to Gambling Insider, Underdog cited that proposal when suing Tennessee this week.

The Sixth Circuit decision binds courts in Kentucky, Ohio, Tennessee and Michigan. Kentucky’s remand motion also cited failed removal efforts in Michigan, Nevada, Washington and Massachusetts, according to igaming-times.com. Washington illustrates the potential operational consequences: after a federal remand in May, a King County judge barred sports markets, and Kalshi geofenced the state under threat of $120,000 a day. Wallach identified possible injunctions and geofencing in Kentucky, pointing to Nevada, Michigan and Washington. A federal officer removal case retains a potential appeal route from remand, which could delay a return to state court.

What it means for prediction markets

• The next decisions concern jurisdiction. The recommendations do not themselves prohibit contracts or impose penalties; objections and district-judge review remain ahead.
• State access is a material uncertainty. Kentucky seeks remedies that could affect sports-contract availability, while its Kalshi complaint also reaches customer-routing brokers.
• Federal developments remain relevant but unresolved. The 23 October briefing deadline and CFTC proposal are separate from the remand process. A proposed rule does not itself change the statute interpreted by the Sixth Circuit.
• Timing may extend beyond district-court review. The federal officer removal appeal route could postpone state-court proceedings even if remand is adopted.