Federal Magistrate Recommends Remand of Kentucky Polymarket Suit

A federal magistrate judge recommended on 14. oktober 2026, that Kentucky’s enforcement lawsuit against prediction market operator Polymarket be returned to the state court where it began, concluding the defendants had not established federal jurisdiction over the Commonwealth’s gambling claims.

Magistrate Judge Edward B. Atkins of the U.S. District Court for the Eastern District of Kentucky signed the Report and Recommendation, which advises the district court to grant Kentucky’s motion to remand the case to the Franklin County Circuit Court. The recommendation is not a final order. District Judge Claria Horn Boom referred the motion to Atkins for findings and a recommendation on 1. oktober 2026, according to the case docket, and the case returns to state court only if she adopts the recommendation.

The Enforcement Suit

Kentucky, through Attorney General Russell Coleman, filed its complaint on 17. juni 2026, in the Franklin County Circuit Court against QCX LLC, Blockratize Inc., QC Clearing LLC and QC Tech LLC, the companies the court treats collectively as Polymarket. QCX, QC Clearing and QC Tech are limited liability companies and wholly owned subsidiaries of Blockratize.

The Commonwealth alleges that QCX, acting in concert with the other defendants, runs and promotes an online sports betting operation in Kentucky without licensing approval from the Kentucky Horse Racing and Gaming Commission. According to the complaint, Polymarket operates a prediction market, an online venue where users stake money on the outcomes of sporting events, and Kentucky residents can use it for unlicensed sports gambling.

The complaint asserts four claims. Two counts under the Kentucky Consumer Protection Act allege that Polymarket falsely suggested the sports wagers it offered without a Kentucky license were lawful, and that it operated sports gambling enterprises in the state unfairly and unconscionably. A third count, brought under the Kentucky Loss Recovery Act, contends the wagers Kentuckians placed on the platform are void and seeks to recover the money lost on them. The fourth count alleges that Polymarket’s website and mobile applications are illegal gambling devices under Kentucky law.

The Rejected Removal Theories

One day after the complaint was filed, Polymarket removed the case to the Eastern District of Kentucky, with the notice of removal entered on 18. juni 2026. Kentucky filed its first motion to remand on 20. juli 2026, Polymarket opposed the motion on 10. august 2026, and Kentucky filed its reply on 31. august 2026.

Polymarket first argued that removal was proper under the federal-officer removal statute, contending that as a contract market designated under the Commodity Exchange Act it acts under the Commodity Futures Trading Commission when it establishes, monitors and enforces its own rules. Atkins rejected the argument. A contract market that polices its own operations is complying with the law, he found, not performing duties handed down by a federal officer, and the relationship the statute requires involves assisting a federal superior’s work rather than mere compliance. The magistrate added that nothing in the record suggested the CFTC would take over operation of Polymarket’s exchange if Polymarket stopped running it.

A Nevada federal court had already rejected the same Polymarket argument on 2. marts 2026, in a suit brought by the state of Nevada through its Gaming Control Board, the recommendation noted, holding that Polymarket’s delegated functions amount to “simple compliance with the law” and do not create the relationship the federal-officer statute requires.

For its second theory, Polymarket asserted federal-question jurisdiction. Under the well-pleaded complaint rule, federal jurisdiction generally exists only when a federal question appears on the face of a properly pleaded complaint, and removal cannot rest on a federal defense alone, including preemption. Because Kentucky’s complaint consists solely of state-law claims, Atkins found no federal question on its face.

Each consumer-protection count, he found, asks only whether Polymarket violated Kentucky’s consumer law, and no element of either claim turns on federal law. On the Loss Recovery Act count, Atkins followed District Judge Gregory F. VanTatenhove’s 3. marts 2026, order remanding a private party’s Loss Recovery Act claim against Kalshi Inc., a Polymarket competitor, to state court. That order treated the statute’s safe-harbor exemption for authorized wagering as an affirmative defense, which cannot support removal. The gambling-device count, Atkins found, turns only on whether Polymarket’s website and apps qualify as gambling devices, and any answer grounded in the Commodity Exchange Act is a defense.

Atkins also noted that the Sixth Circuit’s 25. september 2026, decision in KalshiEX LLC v. Schuler answered a question that had been unsettled in the circuit. According to the recommendation, the appeals court held that Kalshi’s sports-event contracts do not qualify as swaps under the Commodity Exchange Act and that the Act does not preempt state sports-gambling laws, either expressly or by implication. Kentucky filed the opinion as supplemental authority on 29. september 2026. With that question resolved, the recommendation states, what remains in the case involves only Kentucky law.

Fees and Objections

The magistrate recommended denying Kentucky’s request for the costs and fees it incurred as a result of the removal. Absent unusual circumstances, a remand order may include fees only where the removing party lacked an objectively reasonable basis for seeking removal, and Atkins found that at least some of Polymarket’s arguments were not objectively unreasonable, because the Sixth Circuit had not yet decided whether the Commodity Exchange Act preempts state sports-gambling laws when the remand briefing closed.

Particularized objections to the recommendation are due within fourteen days of service, and failing to file them waives further appeal. General objections, or objections that require a judge’s interpretation, do not preserve the right to appeal. A party may respond to another party’s objections within fourteen days of being served with them.