Kentucky Gambling Recovery LLC v. Kalshi Inc., et al.

Summary

The United States District Court for the Eastern District of Kentucky grants Kentucky Gambling Recovery LLC’s motion to remand its action against Kalshi, Robinhood, Susquehanna, Webull, and related defendants to the Franklin Circuit Court. The court concludes that the complaint presents a Kentucky-law claim under the Loss Recovery Act and that anticipated defenses involving the Commodity Exchange Act do not establish federal-question jurisdiction. The court also rejects federal jurisdiction under the substantial-federal-question doctrine and the Class Action Fairness Act, and considers the defendants’ diversity-jurisdiction arguments implausible.

Holdings

1. The plaintiff's complaint asserted a Kentucky state-law claim and did not present a federal question on its face. Defendants' arguments concerning the Commodity Exchange Act and the Loss Recovery Act's safe-harbor provision were potential defenses and could not support removal.
2. Even assuming the complaint satisfied the well-pleaded-complaint requirement, the case did not fall within the narrow substantial-federal-question category identified in Grable. The claim did not necessarily raise a disputed federal issue, the asserted federal interest was not substantial, and federal jurisdiction would improperly disturb the balance between federal and state judicial responsibilities.
3. The action did not qualify for jurisdiction under the Class Action Fairness Act because it was brought solely by Kentucky Gambling Recovery LLC for its own benefit and did not involve a class of at least 100 members or a Rule 23 class.
4. Complete diversity was absent because the plaintiff and the Susquehanna defendants were both citizens of Florida, and the defendants failed to show that the Susquehanna defendants were fraudulently joined.
5. Attorney fees and costs were denied because the defendants had an objectively reasonable basis for removal.

Questions Presented

1. Whether the plaintiff's Kentucky Loss Recovery Act claim necessarily raised a federal question sufficient for removal under the well-pleaded complaint rule or the substantial-federal-question doctrine.
2. Whether the action qualified for federal jurisdiction under the Class Action Fairness Act.
3. Whether the nondiverse Susquehanna and Webull defendants were fraudulently joined so that complete diversity existed.
4. Whether the plaintiff was entitled to attorney fees and costs under 28 U.S.C. section 1447(c).

Disposition

remanded