Court Dismisses Lawsuit Seeking Kalshi Gambling Loss Recovery

Summary:

• A Northern Illinois federal court dismissed a player’s lawsuit against Kalshi over alleged illegal gambling losses.
• The judge ruled the player failed to prove Kalshi had sufficient Illinois contacts or provide details about where and when alleged losses occurred.
• The decision leaves open the possibility of an amended complaint.

A federal court in Illinois has dismissed a player’s lawsuit against prediction market operator Kalshi. The man attempted to recover alleged gambling losses through historic loss recovery laws dating back to the 18th century.

Dismissed Complaint

The U.S. District Court for the Northern District of Illinois ruled that plaintiff Mark Lavery failed to demonstrate that the court had personal jurisdiction over Kalshi and did not provide enough factual information to support his claims. The decision granted Kalshi’s motion to dismiss the complaint.

Lavery filed the lawsuit seeking statutory penalties under gambling loss recovery laws in Illinois, Ohio, Kentucky, and Massachusetts. These laws allow certain third parties to seek recovery of gambling losses when the individual who lost money does not file a claim within a specified period.

The plaintiff argued that, since Kalshi operates an online wagering platform that allows users to place real-money bets on contingent outcomes, it should be made responsible for gambling losses allegedly suffered by users.

He also went on to claim that one former Kalshi employee and other unnamed users had lost money through the platform but had not pursued legal action themselves.

“Not Enough to Sustain Jurisdiction”

However, Judge Matthew F. Kennelly found that Lavery failed to establish that the alleged transactions occurred within the states covered by the lawsuit. The court noted that simply making a platform available to residents of a state does not prove that relevant transactions actually took place there.

The court stated, citing previous Seventh Circuit precedent.

Merely operating a website, even a highly interactive website, that is accessible from, but does not target, the forum state is not enough to sustain jurisdiction

The ruling also rejected Lavery’s request for additional jurisdictional discovery, finding that he had not made a sufficient preliminary showing that Kalshi had the necessary connections to Illinois.

The court said the plaintiff’s claims focused mainly on the relationship between Kalshi Inc. and its subsidiary KalshiEX LLC rather than evidence of actual transactions involving Illinois users.

The court also considered that Lavery’s complaint did not have sufficient detail, as it was not able to clearly identify when the alleged losses took place, how much money was lost, and where where the players located during the said transactions.

Kalshi argued that its platform operates as a prediction market and financial exchange and it is not an illegal gambling operation.

The court dismissed the case but it did not permanently bar further action. This means that Lavery has until July 27 to submit a proposed amended complaint containing at least one viable claim that addresses the court’s concerns.