PredictIt and its co-plaintiffs have asked a federal court in Texas to postpone the case’s transfer to the District of Columbia while petitioning the Fifth Circuit Court of Appeals to intervene. The US District Court for the Western District of Texas ordered the transfer on Jan. 16, 2024, at the request of the Commodity Futures Trading Commission (CFTC). In a rare move, the plaintiffs are seeking to have the appeals court rule that the change of venue is an abuse of the District Court’s authority.
The two parties have been fighting a convoluted legal battle since September 2022. PredictIt is a “political futures exchange,” offering the closest thing the US has to legal betting on elections. Users can buy and sell shares in various political predictions, such as the identity of this year’s Republican vice-presidential nominee. Correct predictions pay out a dollar per share, while incorrect ones become worthless once the outcome is settled.
Until 2022, PredictIt operated under the blessing of a no-action letter from the CFTC to Victoria University in Wellington, Australia. The University had partnered with a private company, Aristotle International, to operate the market for research purposes.
In August 2022, the CFTC withdrew its letter and advised the exchange to shut down. PredictIt, Aristotle, and some individual plaintiffs—but notably not the University—sued, accusing the CFTC of wielding its powers “capriciously” in violation of the Administrative Procedures Act (APA).
The Fifth Circuit has already intervened in one aspect of the case, ordering the District Court to issue an injunction in PredictIt’s favor before proceeding. Having the case transferred to DC and out of the reach of the Fifth Circuit would tip some momentum back the CFTC’s way, something the plaintiffs would like to avoid.
The Argument for a Transfer of Venue
The possibility of moving the case from Texas to DC isn’t new. In fact, a magistrate judge issued a recommendation in favor of the suggestion last January.
In ordering the transfer, Judge David Alan Ezra agreed with the CFTC’s arguments in favor of one.
Firstly, the CFTC, PredictIt and Aristotle are all based in DC. Only the inclusion of individual plaintiffs justified filing the suit in Texas to begin with. Judge Ezra agreed with the CFTC’s assertion that the alleged harms of the no-action letter are most relevant to the former:
The two entity plaintiffs— Aristotle and PredictIt—are both based in D.C. and these entities are also alleged to have been injured and possibly would suffer the greatest economic harm in this case more so than the individual plaintiffs who reside in Austin.
Judge Ezra also agreed that the Texas court’s docket is more “congested” than DCs and that a transfer would speed things up:
This Court’s own heavy docket in the Western District would prevent this case from proceeding to resolution in a more expeditious manner than would be in the D.C. District.
PredictIt Fights to Keep the Case in Texas
The reporting last week of Judge Ezra’s order treated the transfer as a done deal. In most cases, it would be.
However, the plaintiffs then took the extraordinary step of petitioning the Fifth Circuit to intervene again, as it did when the District Court failed to issue a preliminary injunction to keep PredictIt running.
Here, they have asked the Fifth Circuit to issue a mandamus—an order from a higher court to a lower one—returning the case to the Western District of Texas.
PredictIt’s argument for this hinges on the earlier intervention. In asking the District Court to postpone the transfer until the Fifth Circuit responds, the plaintiffs argue that the case needs to remain within the Circuit because the appellate court has already “substantially resolved nearly every threshold and merits issue in the case. ”
It paints the CFTC’s attempt to change venue as being motivated by a desire to avoid the prospect of an appellate court that has already shown signs of siding with the plaintiffs:
The CFTC cannot be blamed for wanting to run for the hills, but the blatant forum-shopping of the agency weighs strongly against transfer, or at least raises a serious issue for resolution for the Fifth Circuit.
The plaintiffs also interpret the phrasing of the Fifth Circuit’s previous order to include an instruction to hear the case out. The Fifth Circuit’s order read, in part:
We REVERSE the district court’s effective denial of a preliminary injunction and REMAND with instructions that the district court enter a preliminary injunction pending its consideration of Appellants’ claims.
(Italics added for emphasis by the plaintiffs).
The argument here is that “its” implies an expectation that the District Court will consider the case itself, not pass that responsibility on to another court.
The CFTC Claims Delay is Neither Possible Nor Necessary
In responding to PredictIt’s petition for a stay, the CFTC argues that the District Court can’t actually grant one.
The Commission argues that the transfer was effective the moment it was issued. At that point, it asserts, the West Texas District Court lost jurisdiction over the case. Delaying the transfer would infringe on the DC District Court’s authority, as that court now has control of the case.
Nonetheless, the CFTC goes on to argue that, even if it could wait to see what the Fifth Circuit says, there’s no need to do so. That’s because, per the CFTC, there’s little chance that the Fifth Circuit will grant the plaintiffs’ request.
The barrier to intervene in that way would be high. As stated in the CFTC’s response:
Plaintiffs can only prevail on their forthcoming petition for a writ of mandamus challenging the transfer order if they can demonstrate a clear abuse of discretion by this Court.
The CFTC argues that the DC District Court will consider the Fifth Circuit’s rulings in interpreting the case. Therefore, it says the change of venue is irrelevant in that regard.
The response likewise claims that “its consideration” is standard legal phrasing and doesn’t imply an order from the Fifth Circuit not to transfer the case.
What’s at Stake With the Potential Change of Venue
A lot may depend on what the Fifth Circuit itself thinks it meant, or didn’t mean, by those words. If it does feel it was commanding the District Court to hear the case, it could potentially find that an “abuse of discretion” occurred.
However, the Fifth Circuit doesn’t grant such requests often. It has said itself that the standard for reversing a well-considered transfer decision is high.
If the case stays put, it seems almost inevitable that it will end up before the Fifth Circuit again. There would be little logic in the Fifth Circuit intervening to block a change of venue only to decline to hear the case on appeals. In that eventuality, previous commentary suggests a good chance of a panel that’s favorably disposed to PredictIt’s arguments.
If the CFTC gets its way, there’s still a high chance of an appeal, but that would go to the DC Circuit Court. There, it might find more sympathetic ears.
Whether the venue matters depends on whether the case is destined for the Supreme Court. If not, then the venue might prove decisive. However, that’s still a long way in the future. In the meantime, the good news for PredictIt users is that the Fifth Circuit’s injunction will keep the site running for at least as long as the District Court portion of the battle takes to play out.
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