Marc Jay Bern, a senior partner with Napoli Bern Ripka LLC, a law firm that represents plaintiffs in the case, said the court's decision to deny "immunity from suit" with respect to the state exemption claims means lawsuits can now move forward.

The "immunity from liability" decisions, he said, must now be decided on a case-by-case basis. "So a suit can be brought," he said, "and if the facts determine that it's meritorious, there's liability. [The defendants] can interpose their defense of immunity, but it's on a case-by-case fact basis as to whether immunity exists partially, completely, or not at all."

The court also dismissed the defendants' motion for summary judgment based on their federal immunity claims.

The court disagreed with a Manhattan U.S. District Court ruling that derivative federal immunity under the Stafford Act could not exist for the city as a matter of law. Essentially, the court found that the city and its contractors, when acting under direct instructions from federal agencies, could be covered under the immunity.

But the appeals court ultimately affirmed the district court's decision to deny summary judgment to the defendants on this basis because the arguments presented were not "sufficiently clear to enable the court to demark the boundary between federally instructed discretionary decisions and those made by the various defendants."

A New York Law Department statement said the court "did not reject the city and contractors' immunity defense, but held only that the district court correctly ruled that the immunity could not be disposed of without further development in the district court of the facts pertinent to that immunity."

Mr. Bern said, "Basically the possibilities for immunity that [the defendants] enumerated don't exist in this case. So for all intents and purposes, the federal immunity will not apply either."

Michael A. Cardozo, corporation counsel, New York City Law Department, said in a statement: "We are disappointed with the court's decision. However, we are confident that as the facts unfold in the district court, the city and contractors will be found to be immune from lawsuits over our response to the terrorist attack."

A FAQ sheet provided by the Law Department said the city has not made a final decision on whether to appeal this latest decision.

Mr. Bern said that both the plaintiffs and defendants are in the process of core discovery. Once the core discovery is complete, Mr. Bern said deposition proceedings for the plaintiffs will begin.

"And hopefully all of this can be done…so that we can get to trial in the next 12-to-18 months with our first cases, because these people need their day in court and need to be compensated," he said.