Fifth Circuit Court of Appeals Issues Order Against Mootness in PredictIt Case

In a memorandum dated May 1, the three-judge panel of the US District Court for the Western District of Texas declared that the lawsuit to determine the fate of PredictIt should continue. Circuit judges James E. Graves, James C. Ho, and Kyle Duncan denied the “suggestion of mootness” filed by the Commodity Futures Trading Commission (CFTC), the defendant in the case.

The CFTC sought to forfeit the current legal battle and start from scratch in its attempts to force PredictIt to shut down. However, it now looks like it will have to fight the lawsuit to the end, despite withdrawing the letter that sparked it in the first place.

How the PredictIt Case Started

PredictIt is the larger of two political futures trading sites serving the US market. Users can buy and sell shares whose value depends on the outcome of political propositions, such as who will win the 2024 presidential election.

The CFTC has never authorized such markets. Ordinarily, it might take legal action against unauthorized ones. Until last year, however, PredictIt operated under the blessing of a no-action letter the CFTC issued in 2014.

PredictIt is a project by Victoria University in Wellington, New Zealand. In its letter, the CFTC had promised not to take action against the site so long as it remained limited in scale and its primary purpose was educational.

In August 2022, the CFTC withdrew that amnesty, giving PredictIt until February 2023 to shut down. Aristotle International – the private company Victoria hired to run the site – led a group of plaintiffs in a lawsuit against the CFTC. Their goal was to keep the site in operation, perhaps indefinitely, but at least until open contracts reached their natural conclusion.

Notably, Victoria University itself was not among the plaintiffs.

Suggestion of Mootness

The case started poorly for Aristotle and its fellow plaintiffs. However, they found more sympathetic judges once it went to appeals.

Judges Ho and Duncan, both appointees of former president Donald Trump, signaled during oral arguments that they were inclined to side with the plaintiffs. The main issue in the case was that the CFTC hadn’t explained its decision in the letter. To the plaintiffs – and, seemingly, those two judges – the CFTC appeared to be wielding its powers in an arbitrary and capricious manner.

The CFTC responded by calling for a do-over. It retracted the August 2022 letter and issued a new one that explained its reasoning. In doing so, it also pointed out that it had already expressed those concerns privately to the university before canceling its no-action promises. (That may explain why Victoria University declined to join the lawsuit.)

According to the CFTC’s “suggestion of mootness,” the fact that the August 2022 letter was no longer valid meant the case was now a fight about nothing.

If the court had agreed, that would have ended the lawsuit. Victoria University would have a chance to respond to the new letter, and the process would start over, perhaps triggering a new lawsuit.

However, the three judges denied mootness. That is, they believe the case is still relevant and should continue.

The memorandum offers no rationale for the decision. One possible reason would be the worry that the CFTC might repeat the strategy if allowed, issuing new letters as necessary until finding the legal odds in its favor.

What Happens Next in the PredictIt Case?

In addition to denying mootness, the memorandum clarifies a stay the court issued on Jan 26, 2023. This prohibits the CFTC from attempting to deter any trading on PredictIt until 60 days after the case concludes.

There’s no knowing how long the case will drag on, but it means PredictIt will continue to operate for many more months at least.

It will be interesting to see how the case shapes up. Presumably, the court feels the CFTC’s new letter remains within the scope of the case. If not, there would, in fact, be nothing left to argue about. The court agreed to unseal “Exhibit A,” presumably the August 2022 letter, granting the CFTC’s claim that this evidence is now moot.

That may force a change in strategy for the plaintiffs. The new letter contains the explanation whose absence formed the cornerstone of their original argument. Whether and how Victoria University responds to the new letter may also play a role.

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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