[00:00:02] Speaker 02:
And we will move on. We have one separate argument, State of Nevada versus Kolchak's case number 26-1304.

[00:00:42] Speaker 00:
Good morning, and may it please the court. Jessica Whalen, Chief Deputy Solicitor General, here on behalf of the Nevada Gaming Control Board. In February of this year, the Nevada Gaming Control Board filed a civil enforcement action in state court against Cal Sheen.

[00:00:56] Speaker 02:
Am I mixed up? So shouldn't appellant be arguing first?

[00:01:01] Speaker 01:
So there was actually some confusion on this, but the listing had her listed first, and so...

[00:01:09] Speaker 00:
Sure. So we filed a motion to dismiss the appeal.

[00:01:12] Speaker 02:
Oh, so we're going to hear from the motion to this. Okay. You're okay with this?

[00:01:18] Speaker 01:
Fine.

[00:01:20] Speaker 01:
we would have preferred to go first. We took the court to be telling us that we- No.

[00:01:25] Speaker 00:
Okay. And if the court would like to hear from appellant first, that's fine.

[00:01:29] Speaker 02:
Why don't we do this? Why don't we back up? The normal course, you're right, it's a little confusing because of the motion to dismiss, but let's have appellant argue first. They can save for rebuttal. No, you didn't do anything wrong, but generally appellant will argue first. It is not always reflected as the first person listed on the thing. So thank you.

[00:02:02] Speaker 01:
May it please the court, Colleen Sinzdak for defendant appellant Kalshi. Kalshi is entitled to a stay pending appeal of the remand order in this case, which has created an intolerable risk of inconsistent state and federal judgments regarding Nevada's ability to enforce its state laws against a federally registered exchange.

[00:02:27] Speaker 01:
This court has subject matter jurisdiction over the appeal under Section 1447D because Kelsche's notice of removal both cited Section 1442 and explained why federal officer removal was appropriate under the artful pleading doctrine. That is all that is required under Friedenberg, Blumberger, and BP itself.

[00:02:52] Speaker 01:
Kalshi has also more than satisfied the requirements for a stay. Serious questions on the merits and a balance of hardships that tilts sharply in Kalshi's favor.

[00:03:04] Speaker 02:
Council, are there other examples in a remand motion like this? I mean, first of all, it's very difficult to get an appeal of a remand motion. Are there other examples where stays pending appeal have been granted in similar circumstances?

[00:03:19] Speaker 01:
The circumstances here are sort of completely, I would say, we haven't found anything unique. Thank you. We haven't found anything like it. I would say I think that they were expressly contemplated in Express Scripts because when Express Scripts rejected the argument that Coinbase required automatic stays in all circumstances... It then applied the stay factors, and it said we don't think a stay is appropriate here because there's no risk of inconsistent state and federal determinations.

[00:03:52] Speaker 01:
And, of course, here I think we have one of perhaps the rare circumstances where you do have a very high risk of inconsistent state and federal determinations.

[00:04:01] Speaker 02:
One of the questions I had about that – There's been other remand motions in other courts, and some of them weren't even appealed. Some of them weren't requested for a state pending appeal.

[00:04:14] Speaker 02:
I presume state enforcement actions are already going on in certain states. Is that true? Can you inform the court about any of that?

[00:04:22] Speaker 01:
So there are state court enforcement actions going on in some of the states, but for the most part, we've been successful in ensuring that there are not this risk of state and federal actions at the same time. So I think Arizona is a really good example of that because it's a little bit like this case in that we filed our motion for preliminary injunction yesterday. Then Arizona came in to bring a criminal prosecution against Kalshi.

[00:04:52] Speaker 01:
And then we immediately were able to get, with the assistance of the CFTC, a TRO to prevent those state court proceedings from going forward because I think there was a recognition on the part of the district court that that would be completely inappropriate in these kinds of circumstances. So I also want to refer you, and I should have said this, to the Georgia gambling addicts case, which is an example of a federal court saying that there needs to be just a removal in circumstances similar to this to prevent the parallel state and federal proceedings, and because there are federal questions on the face of the of the well-pleaded complaint.

[00:05:36] Speaker 01:
So I think the body of case law does demonstrate that what we really need to avoid here is having a state and a federal court considering exactly the same issue at exactly the same time and potentially reaching different outcomes.

[00:05:54] Speaker 01:
So I think that's kind of the zeitgeist. Maybe to get into the specific, how does that work out doctrinally? I think there is appellate jurisdiction here because Kalshi invoked 1442. And we know that under BP, this court has appellate jurisdiction so long as Kalshi both cited 1442. And here we also explained exactly why

[00:06:20] Speaker 02:
Can you tell me what your amendment, because then you went back and amended. Help me understand the amendment. You did not, I mean, you cited 1442 in the original. So what was the amendment necessary for?

[00:06:32] Speaker 01:
We did. Let me be very clear. We did not think the amendment was necessary. We were very clear all along that our notice of appeal, our original notice of appeal, was sufficient because it invoked 1442. And not only that, the state responded to our 1442 argument. The district court expressly addressed it. It refers to us having three grounds for removal, all based on our original notice of appeal.

[00:07:01] Speaker 01:
But what happened is that finally, once we actually said, now we're going to appeal, that's when the state said, oh, no, you actually didn't invoke 1442 because it wasn't in the first line of your notice of appeal. And we said, OK, there is no first line rule. You have to cite it, but it doesn't have to be in that very first sentence. But if you think there's a first line rule, we will just take advantage of the fact that every court has recognized you have 30 days to amend your notice of appeal.

[00:07:32] Speaker 01:
So we said, fine, we will amend our notice of appeal and put it in that first line. But really, that's... That's what was going on. We did not think that this was necessary. Now, we do think that the district court should have accepted that amendment, but we just don't think that anything turns on that because the case law is so clear from Friedenberg and Blumberger and, again, BP itself.

[00:07:56] Speaker 02:
Does your argument depend on – you make the argument that the CFTC was a required party. That's right. Does your ability to win on this depend upon that argument? If we reject that, is there another basis for you to prevail?

[00:08:13] Speaker 01:
Yes, and here it's important to distinguish between two things. There is federal appellate jurisdiction here because we invoked 1442, and that's the CFTC is a necessary party argument. We think we're right on that, but even if you disagree with us under both Blumberger, I may be adding an er there, but yes, Blumberger and BP, it's clear that even if the argument is just, actually BP says even if the argument is frivolous, There's still appellate jurisdiction to review the removal order as a whole.

[00:08:45] Speaker 01:
And here we made two arguments on appeal, both the federal removal jurisdiction and federal question jurisdiction, because two of the state laws that the state is pressing against us expressly invoke the federal registration and licensure laws. And so we think those put a federal question at issue right on the face of the complaint. And I'm happy to go into that argument, which I think is also crystal clear. Again, that's the Georgia gambling addicts case.

[00:09:15] Speaker 01:
It's just saying that where a state law is saying you violate this law if you don't have the licenses required by federal, state, and local law, then you have to look to federal, state, and local law to see if you violated that particular statute.

[00:09:33] Speaker 01:
And so here we think... We didn't violate it because federal law says you have to register on the exchange, and then there's exclusive jurisdiction. So we think that's clear. But again, we don't have to win on that. The point is a court is going to have to confront that argument to decide whether the Nevada state laws apply to Cal Shee here.

[00:09:57] Speaker 01:
you know, just to make it clear, a perfectly reasonable way of this court kind of getting through is to say here there was the, Kalshi invoked section 1442 in its notice of appeal. They explained the basis for it. That provides jurisdiction under 1447D.

[00:10:15] Speaker 01:
Under BP, we review with the entire order. Kalshi has explained correctly that under Grable, There is a federal question jurisdiction because Nevada state law expressly invokes the federal licensure regimes and Most important, the balance of harms tips dramatically towards Kalshi here. And it's not just towards Kalshi. It's honestly towards the public interest because we do have an intolerable risk of inconsistent judgments.

[00:10:51] Speaker 01:
Without a stay pending appeal here, without preventing the removal order, pardon me, the state proceedings from going forward, The state court is going to issue a preliminary injunction against Kelsey tomorrow. So it's actually going to be tomorrow. There will be a preliminary injunction from the Nevada state court. And that is while this court will be considering whether Nevada even has the authority to be pressing those laws.

[00:11:19] Speaker 02:
Are there any other preliminary injunctions by other state courts at this point?

[00:11:24] Speaker 01:
They're just, sorry, trying to go through. Yes, currently, you know, I need to check. Let me get back to you on that.

[00:11:33] Speaker 02:
Do you want to take some time for rebuttal?

[00:11:35] Speaker 01:
I do. I do. And then maybe I will answer exactly that question. I'm virtually positive there are, but I certainly don't want to bind us to any injunctions that don't exist.

[00:11:44] Speaker 02:
Thank you very much.

[00:11:45] Speaker 01:
Thank you.

[00:11:52] Speaker 00:
Good morning again. I want to talk about the motion to stay and the motion to dismiss in tandem because I think my friend on the other side got a little bit into the merits of the appeal, which we haven't had an opportunity to brief. So here we're only on the motion to stay and the motion to dismiss. And when we look at the neck and factors and whether there's a likelihood of success that warrants a motion to stay, we need to look at whether there's a likelihood of success on the remand appeal itself, not the underlying merits of the remand appeal.

[00:12:28] Speaker 00:
And here, Kalshi is not likely to succeed on overturning the district court's remand decision because there's no appellate jurisdiction that is vested in this court. So that brings me to the motion to dismiss. Judge Nelson, as you noted, pursuant to 28 U.S.C. 1447D, remand orders are generally not reviewable on appeal with a narrow exception when a defendant has invoked federal officer jurisdiction under Section 1442. And a defendant seeking to invoke federal officer jurisdiction under that section must do two things in its notice of removal.

[00:13:04] Speaker 00:
First, it must assert that the case is removable. in accordance with or by reason of Section 1442. That comes from the U.S. Supreme Court's decision in BP PLC.

[00:13:15] Speaker 00:
Second, the defendant must provide sufficient facts to make out a claim for federal officer removal, and that comes from this court's 2023 decision in Friedenberg. Now, while detailed factual allegations are not required, a defendant cannot rest on mere legal conclusions. And Cauchy's notice of removal failed to satisfy either of these requirements, and therefore it did not invoke the court subject matter jurisdiction.

[00:13:41] Speaker 00:
So its notice of removal does not actually allege that the case is removable under 1442. Rather, the notice states that Cauchy, quote, hereby removes the above caption action pursuant to 28 U.S.C. sections 1331 and 1441.

[00:13:58] Speaker 00:
Now, my friend on the other side characterized us as requiring that they mention 1442 in sort of the first sentence of the removal action, or I'm sorry, the removal notice, and that's not at all what the state thinks is required. But what the state thinks is required is more than what Koushi did, because Koushi later asserts that the board should have named the CFTC in its enforcement action, end quote, had they done so, that would have provided yet another basis for removal.

[00:14:28] Speaker 00:
The words Kalshi chose and the way it chose to frame its removal notice are fatal to its argument that it actually invoked 1442. It uses the conditional tense and the subjunctive mood to express a hypothetical scenario.

[00:14:42] Speaker 02:
So the amendment cured that up, and in the amendment they've said, no, we are actually bringing this under 1442 as well.

[00:14:50] Speaker 00:
So I think the amendment was a recognition that there was a defect in the original notice, but the— The defect is curable.

[00:14:59] Speaker 00:
The district court found not. So the district court, when it denied Kalshi's motion to stay, sua sponte struck the amended notice because what happened is the district court initially remanded the action back to state court. It recalled its remand notice for the limited purpose of considering Kalshi's motion to stay. It did not recall its remand notice for the purpose of allowing Kalshi to amend its notice of removal. So under the district court's reasoning and the district court in that order.

[00:15:30] Speaker 02:
And then if we were to consider the amendment or say that we thought that the original actually raised the issue, would that give us jurisdiction or not necessarily? Because they would be then arguing that the CFTC was a necessary party. So that could be a basis for... appellate jurisdiction, but then we just have to address whether they're right on that point, wouldn't we?

[00:16:01] Speaker 00:
I don't think so. And I think that the proper way to go about this would have been if Kalshi believed that the CFTC was a necessary party, then it had a mechanism under state procedural law under NRCP 19 and NRS to join them as a necessary party. And then at that point, the CFTC If they were successful in joining them, the CFTC itself would have had a right to remove. But CAUSHI, even in that circumstance, wouldn't have had a right to remove. If the CFTC, as the federal agency, had chosen to remove, CAUSHI would have been brought along with it.

[00:16:36] Speaker 00:
But it still wouldn't have given CAUSHI itself a right to remove.

[00:16:40] Speaker 00:
And to put a finer point on that, one thing that CAUSHI also could have done is what one of its fellow prediction markets did. Polymarket did in a similar state enforcement action brought by the board, which is Polymarket removed the case claiming that it was acting under a federal officer pursuant to Section 1442, thereby giving it the right to remove the action.

[00:17:08] Speaker 00:
We think that that argument is meritless, of course, but frivolous or not, it actually invoked Section 1442 removal and the state's not contesting appellate jurisdiction in that case.

[00:17:20] Speaker 00:
Interestingly, Polymarket filed its notice of removal first, making that argument, so Calshi was on notice that that was an argument it could have made. It made a tactical decision not to advance that argument, and it should be held to It's litigation decisions in that respect.

[00:17:36] Speaker 02:
So what is the current status?

[00:17:38] Speaker 02:
Council represented that tomorrow. Now, I didn't know if that meant if we deny their appeal, then the next day that state court is going to issue a TRO or is the state court scheduled to enter a TRO or a PI tomorrow?

[00:17:55] Speaker 00:
So the state court has already issued a TRO.

[00:17:59] Speaker 00:
The TRO is in effect or was extended for an additional 14 days because there was a preliminary injunction hearing.

[00:18:08] Speaker 00:
The state court judge from the bench ruled that it was going to grant the preliminary injunction. And under our sort of our state procedure, the parties work out a proposed order to the court. So right now, Kalshi and the board are in the process of working out that order. Okay.

[00:18:22] Speaker 02:
Um, we have a deadline of tomorrow right now is prohibited from, um, and, uh, using the, um, using its contracts, uh, in the gaming industry in, in Nevada. Is that right? They're under a TRO to do that.

[00:18:41] Speaker 00:
Yes. So the scope of the TRO is Cal, she is prohibited from offering sports election and entertainment related event contracts in the state of Nevada. Um, and the preliminary injunction is, is expected. So, so our deadline is to get the court of proposed order by tomorrow. Um, we've had conversations among council and we're going to ask for a one week extension, um, and extend the TRO by consent until the time at which the state court judge enters the preliminary injunction.

[00:19:11] Speaker 00:
Um, I do want to briefly speak about the second requirement that the Friedenberg court, um, summarized, which is that the defendant must plead in its removal notice that it is first a person within the meaning of the statute. Second, a causal nexus exists between the plaintiff's claims and the actions it took. So stated differently, the defendant has to show that it acted under color of federal office. And third, that it has a colorable defense to plaintiff's claims.

[00:19:42] Speaker 00:
So here, Cauchy fails to establish that there's a causal nexus between the board's claims and any action it took pursuant to a federal officer's direction. The only two paragraphs in its removal notice, paragraphs 26 and 27, don't even attempt to allege that Koushi was acting pursuant to the CFTC's direction. Instead, the focus is on the hypothetical possibility that the CFTC might have removed the action if the board had named it as defendant.

[00:20:10] Speaker 00:
And this is much different than the removal notice in Friedenberg, which asserted that hospital employees were deemed federal employees for immunity purposes, bringing them within the scope of federal officer removal. So I think the key point here is that federal officer jurisdiction was not actually invoked. You have to have some theory by which you're either a federal officer or acting under a federal officer, and Kalshi's theory is much too far removed from that. It's conditional, it's hypothetical, it's counterfactual, and it in fact admits that no federal officer jurisdiction exists because something else would have had to happen as a prerequisite for that to occur.

[00:20:48] Speaker 00:
With that, we think the appeal should be dismissed for lack of subject matter jurisdiction.

[00:20:53] Speaker 02:
Thank you for your argument. We'll give you time for rebuttal.

[00:21:00] Speaker 01:
Thank you, Your Honor, and I've clarified the state of play with respect to injunctions. There is no other injunction in force against Kalshi anywhere in the country.

[00:21:10] Speaker 02:
There is in Nevada, or at least a TRO.

[00:21:13] Speaker 01:
Well, there's a TRO, and let me just clarify one thing because I think it's important. Massachusetts, the state, did in fact issue a PI, but it was stayed pending appeal precisely because of the significance of issuing injunctive relief of this kind.

[00:21:29] Speaker 02:
Was that state pending appeal of the underlying merits, the arguments we just heard, or of the appeal of a remand order?

[00:21:39] Speaker 01:
No, it's an appeal of the, pardon me, a state court appeal of the preliminary injunction order. Okay.

[00:21:47] Speaker 01:
I want to be clear, though, that it's significant here, the fact that there has been no other order against Kalschi, both because, as we've been talking about, the risk of conflicting state and federal court determinations. but also because the CFTC has an impartial access rule. And that says that Cal-Chi needs to be offering the same things nationwide. But right now, Cal-Chi is violating that rule because in Nevada, under Nevada state laws, you can only practice actually within Nevada, within the state itself.

[00:22:21] Speaker 01:
And right now, Cal-Chi is not allowed to do any exchange activity in Nevada itself under the TRO. So Kalshi is currently in violation of a federal regulation as a result of a state – Because you are offering it, just not in Nevada. Nationwide. We just can't offer it in Nevada itself. And, of course, under the Commerce Clause, which gives the ability to regulate interstate commerce exclusively to Congress, Nevada really can't insist that we adhere to their law by shutting down nationwide. That would be – I also just want to be clear that we did invoke section 1442.

[00:22:57] Speaker 01:
I now take the state to be arguing we should have made what we did not view as a meritorious argument and Nevada doesn't view as a meritorious argument that we are ourselves. acting under a director or something like that. What we argued is that Nevada engaged in artful pleading by leaving out the CFTC, even though they are a necessary party, in part because the injunction is currently forcing us to violate the CFTC's impartial access regulation. And we said because of that, there is federal officer removal.

[00:23:28] Speaker 01:
And I just again want to emphasize that we really do Ask this court to consider the strong equities favoring the issuance of a stay pending appeal as quickly as possible.

[00:23:41] Speaker 01:
Nevada is correct that we have now agreed to a one week to extend, but there's about to be a preliminary injunction in place as to all event contracts is a possibility. So we want to be we were very anxious for a leave from this court. Thank you.

[00:23:54] Speaker 02:
Thank you. Thank you to counsel for your arguments in this case. The case is now submitted and that concludes our arguments for the week. Thank you.