UPDATE 1-U.S. court sends wiretap case back to lower court

(Adds comments from plaintiff's attorney, background, byline)

By Eric Auchard

SAN FRANCISCO, Aug 21 (Reuters) - A federal appeals court on Thursday declined to rule on whether lawsuits seeking to target U.S. President George W. Bush's warrantless wiretapping are covered by secrecy laws or can be contested in court.

Citing the FISA Amendments Act of 2008, a three-judge panel of the 9th U.S. Circuit Court of Appeals on Thursday sent the case entitled "Hepting v AT&T" back to the lower court that had heard the case under U.S. District Court Judge Vaughn Walker.

A lawyer for plaintiffs in the case said the appeals court ruling could force the U.S. government to invoke the FISA law, provisions of which protect telecommunications companies from lawsuits for cooperating with government efforts to combat terrorists through wiretapping or other means of surveillance.

The U.S. Justice Department, which along with AT&T is a defendant in the case, declined to comment. The government has argued it should not have to reveal surveillance requests it may have made to telecom providers and has sought to dismiss the case on the grounds of national security.

The suit against AT&T alleged the telecom company violated federal privacy laws by helping the government wiretap U.S. Internet users. The 9th Circuit panel heard arguments last August but waited to publish its ruling until now.

Cindy Cohn, legal director for the Electronic Frontier Foundation, the computer civil liberties group acting as legal counsel for the plaintiffs who argue their privacy was violated, said returning the case to the lower court could set the stage for her group to ask Judge Walker to rule on the constitutionality of the amended FISA law later this fall.

"In the long run, the appeals court ruling may have a silver lining because the government may end up having to waive its state secrets argument," Cohn said.

The Foreign Intelligence Surveillance Act of 1978 makes it illegal for the government to engage in domestic electronic surveillance but also spells out ground rules for investigating U.S. citizens suspected of espionage.

Companies including AT&T Inc (T.N) and Verizon Communications Inc (VZ.N) face dozens of suits accusing them of improper participation in a warrantless wiretap program launched by Bush after the Sept. 11 attacks. The Hepting case was filed in January 2006 and is further along than others.

Earlier this year, the Democratic-led Congress retroactively shielded phone companies from such suits, on the basis that immunity was needed to win future wiretap cooperation.

Some Democrats and civil liberties advocates countered that companies should be held accountable for participating in a program critics say was illegal. (Additional reporting by Duncan Martell, editing by Alan Elsner)