Magistrate Judge Recommends Change of Venue for PredictIt Case, Denies Supplemental Memorandum

As the rest of us were enjoying the holidays, the PredictIt case was heating up. The flurry of activity began with a report and recommendation from the US Magistrate Judge who heard the Commodity Futures Trading Commission’s (CFTC) motion to transfer the case from Austin to a federal court in DC.

The CFTC is the defendant in the case, which involves the impending shutdown of PredictIt’s predictions market site. The plaintiffs are seeking to prevent or at least delay this occurrence.

The Magistrate Judge simultaneously denied the plaintiffs’ motion for leave to file a supplemental memorandum. This came in response to the CFTC’s motions to dismiss and transfer the venue.

This isn’t the start of the case that the plaintiffs were hoping for. Almost immediately following these actions, they filed fresh objections to the report and its recommendations.

The PredictIt Case in a Nutshell

PredictIt is an incredibly popular political exchange market. Users can buy and sell “shares” in various future events, turning a profit if their shares match the real-world outcome.

The site has operated under the auspices of a CFTC no-action letter since 2014. The exchange received widespread attention alongside other political prognosticators. Historically, statistical predictions derived from share prices on the exchange have beaten those of many experts. The market was frequently praised for its commitment to research and willingness to provide data to academics.

However, despite the site’s popularity, the CFTC determined before the 2022 midterm elections that it was no longer operating in compliance with the terms of the letter. As a result, the CFTC elected to revoke its promise not to take enforcement action against PredictIt. The letter it sent to PredictIt was short on details but mandated that by mid-February 2023, the site close out all open markets.

A handful of stakeholders then filed suit against the federal agency in an effort to block the shutdown. They did so at a federal courthouse in Austin, Texas, though the CFTC believes the case should be heard in the District of Columbia.

The CFTC, therefore, responded by filing a motion to transfer the venue and dismiss the case. The plaintiffs, naturally, opposed this. On Dec 1, 2022, a federal Magistrate Judge heard oral arguments on the motion.

Following the hearing, the plaintiffs filed a motion to submit a supplemental memorandum containing additional arguments against the CFTC’s motion. Just four days later, US Magistrate Judge Mark Lane filed his report and recommendations to District Court Judge Lee Yeakel. It is now Yeakel who will ultimately rule on the matter.

The Report and Recommendations

The analysis in the report begins by looking at the motion to transfer the venue from Austin to DC. It notes that it appears likely that if the case survives a motion to dismiss, it will be resolved via summary judgment.

What “summary judgment” means is that the parties are not in dispute about any of the underlying facts. The only issue for the court system to resolve is the legal implications.

Judge Lane deemed the public interest factors the most compelling element of the case. He noted that a DC court might, therefore, be better suited to handle that case because “Austin has relatively little local interest in this matter.”

The Magistrate Judge’s report also seemed to downplay the lead plaintiff’s interest in the case. Judge Lane states:

Plaintiffs repeatedly emphasized Mr. Clarke’s residency in justifying Austin as the venue, although they conceded that from an economic perspective Mr. Clarke was not the largest investor or faces the greatest potential financial loss of the Plaintiffs. Indeed, even though there are numerous other Plaintiffs, Plaintiffs consistently argue this case is about how the withdrawal of the No-Action Letter has harmed Mr. Clarke.

He then noted that PredictIt and its operator Aristotle International are in DC. It was, therefore, odd to the court for the plaintiffs to insist that Austin was the proper venue.

Hold Those Thoughts

The report comes out in favor of the defendant’s efforts to transfer the case to DC. However, it also addresses the plaintiffs’ request for a supplemental memorandum.

Judge Lane rebukes them for this, stating:

All of [the supplemental memorandum] presents arguments that either were or could have been made at the hearing. Had the court desired additional briefing or thought it would be helpful, the court would have asked for it.

The Magistrate Judge’s report concludes by addressing only the motion to transfer the venue. It recommends that the District Court do so while denying the plaintiff’s request.

The Plaintiffs Appeal

In response to the Magistrate Judge’s report and recommendations, the plaintiffs’ appealed and filed objections, requesting oral arguments.

These objections argue that the Magistrate Judge erred in not providing appropriate deference to where the plaintiffs selected to file the case.

Additionally, the plaintiffs argue that the report misapplies the tests for weighing interests to determine where to hear the case.

What Comes Next?

The Notice of Appeal is now on the docket, and the transcript has been filed. These are necessary steps before there can be a hearing. The parties now have 21 days from Dec 29, 2022, to request any redactions of the transcript, which will then become publicly available after 90 days.

Unfortunately, these recommendations certainly do nothing to help the possibility of resolving anything before the Feb. 15 deadline given by the CFTC for PredictIt to settle its remaining markets. The appeal may enjoy an expedited schedule because this is a pressing matter involving relatively straightforward issues.

Nonetheless, time is running out, with the deadline just over a month away.

About the Author

John Holden

John Holden

John Holden is a writer at Bonus, focused on legal and regulatory issues in the gambling industry. He is a full-time academic but has been writing for a number of gaming publications since 2018. He is the author of more than 50 academic publications and hundreds of mainstream articles on the regulation of the gaming industry.
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