CFTC to Fifth Circuit: PredictIt Plaintiffs’ Lack Standing, Injuries Not Cognizable

Lawyers for the Commodity Futures Trading Commission (CFTC) submitted a new document to the Fifth Circuit Court of Appeals on June 28, drawing the court’s attention to a recent Supreme Court decision. The CFTC feels that the ruling in United States v. Texas is pertinent to its attempts to get the court to dismiss the PredictIt case.

On the surface, the two cases appear very different.

PredictIt is a political futures exchange operating out of the Victoria University of Wellington in New Zealand. The CFTC does not typically authorize the trading of political predictions as commodity futures. However, it gave the university assurances that it would not take enforcement action against a small exchange for research purposes. It withdrew that permission last year, sparking a lawsuit to keep the site running.

Conversely, United States v. Texas was about immigration law. Texas and Louisiana had challenged the Department of Homeland Security (DHS) over changes to its enforcement guidelines. These states wanted to see greater enforcement, saying the DHS’s reduction in arrests of undocumented migrants was costing them money.

Despite those apparent differences, the CFTC is attempting to draw a parallel between them regarding “legally and judicially cognizable injury.” 

What that means in plain English is what sort of harm a plaintiff must allege for a case to be within the court’s jurisdiction. The Supreme Court agreed with the DHS that the states weren’t “harmed” by its policies in a way a court can rule on. The CFTC feels the same is true of the PredictIt plaintiffs.

‘Cognizable Injury’ in US v. Texas

In 2021, Alejandro Mayorkas became Secretary of Homeland Security under President Joe Biden. One of his acts in that first year was issuing new guidelines for the enforcement of immigration law.

The new guidelines established priorities for which undocumented noncitizens the DHS would seek to detain and deport. Suspected terrorists or dangerous criminals were at the top of the list, followed by recent migrants. Those who had already established roots in the US were deprioritized.

Texas and Louisiana felt that the new guidelines violated specific statutory requirements and attempted to compel the federal government to change the guidelines.

The states won in lower courts. However, the federal government appealed the case until it reached the Supreme Court, which ruled that the states lacked standing to bring the claim in the first place.

To sue, the plaintiff must demonstrate “injury in fact.” The states had done this by showing that the presence of additional noncitizens was costing them money. However, the injury must also be “judicially cognizable,” meaning something courts have the authority to correct.

Based on precedent, the Supreme Court ruled that only those likely to be targeted by an enforcement action suffer a judicially cognizable injury from a change in enforcement policies.

What Does US v. Texas Have to Do With PredictIt?

There are two aspects of the PredictIt case that the CFTC keeps coming back to:

  1. The protection offered by no-action letters applies only to the recipient, and
  2. The recipient of the CFTC’s letters was Victoria University, notably absent from the list of plaintiffs.

The CFTC maintains that the withdrawal of a no-action letter isn’t the sort of administrative action a court can review. However, it says that even if the court believes otherwise, the PredictIt plaintiffs aren’t the right party to file the suit.

The CFTC maintains that withdrawing the letter changes nothing for Aristotle because it could arguably have pursued the third-party operator regardless. By the logic of the Commission’s legal team, only Victoria University benefited from the protection, so withdrawing it does not put Aristotle at any greater risk than it was previously.

According to that line of thinking, any harm suffered by Aristotle and the other plaintiffs doesn’t fall in the category of “judicially cognizable.”

How Will the Fifth Circuit React to CFTC’s the Latest Filing?

Assuming the case proceeds, the CFTC will likely continue to make these and similar arguments. However, it’s unlikely that the latest filing will spark an immediate change in the Fifth Circuit justices’ minds.

The three-judge panel has already declined to dismiss the case, indicating a desire to hear these arguments in full.

Moreover, there do seem to be some other differences between the cases that the CFTC has glossed over. For one thing, the Supreme Court found it relevant in United States v. Texas that the states were attempting to compel greater rather than lesser enforcement. The syllabus of the decision states:

There are good reasons why federal courts have not traditionally entertained lawsuits of this kind. For one, when the Executive Branch elects not to arrest or prosecute, it does not exercise coercive power over an individual’s liberty or property, and thus does not infringe upon interests that courts often are called upon to protect.

The decision goes on to point out that “for standing purposes, the absence of coercive power over the plaintiff makes a difference.”

The thrust of the PredictIt case is in the opposite direction, as the CFTC is moving towards potentially greater enforcement.

What the court makes of these differences remains to be seen. However, it would be surprising if it were to summarily dismiss the case at this point rather than let these arguments play out at trial.

About the Author

Alex Weldon

Alex Weldon

Alex Weldon is an online gambling industry analyst with nearly ten years of experience. He currently serves as Casino News Managing Editor for Bonus.com, part of the Catena Media Network. Other gambling news sites he has contributed to include PlayUSA and Online Poker Report, and his writing has been cited in The Atlantic.
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