U.S. District Judge Vaughn Walker in San Francisco disagreed with the government's assertion that the case should be thrown out because its subject matter and evidence involve "state secrets."
"Because of the public disclosures by the government and AT&T, the court cannot conclude that merely maintaining this action creates a 'reasonable danger' of harming national security," Walker wrote in a 72-page order (click here for PDF).
The judge also dealt a blow to AT&T's request to dismiss the case on three separate grounds.
The Electronic Frontier Foundation, a San Francisco-based civil liberties group,, charging that AT&T had opened up its telecommunications facilities to the NSA for use in spying on the phone calls and e-mails of "millions of ordinary Americans." Such a practice violates free speech and privacy rights spelled out by the U.S. Constitution and also runs afoul of federal wiretapping law, the EFF claims.
Walker's ruling on Thursday "vindicates the privacy and security rights of every citizen in the United States," said Robert Fram, an attorney with the law firm Heller Ehrman, which assisted the EFF in the case.
EFF staff attorney Kevin Bankston said in a conference call that the organization was "very happy" with the ruling and was prepared to go ahead with the process of discovery, or gathering relevant pretrial documents.
The Justice Department and AT&T have the right to challenge the decision, though they haven't yet announced whether they plan to do so. They have until July 31 to make arguments as to whether the case should be stayed pending such an appeal. All of the parties are due back in court on Aug. 8 for a conference about how the case will proceed.
Justice Department spokesman Charles Miller said the agency is reviewing the judge's order and has made "no determination" as to what it will do next.
AT&T said it is also reviewing the judge's order and "evaluating possible next steps." The company "is fully committed to protecting our customers' privacy, and we would not provide customer information to any government agency except as specifically authorized under the law," it said in a statement.
Lawful or unlawful surveillance?
In April court filings seeking to dismiss the case, AT&T had argued that it was entitled to various forms of "immunity" from prosecution in part because "telecommunications carriers should not be subject to civil liability for cooperating with government officials conducting surveillance activities. That is true whether or not the surveillance was lawful, so long as the government officials requesting cooperation assured the carrier that it was."
Walker rebuffed AT&T on those arguments, saying the company cannot "seriously contend that a reasonable entity in its position could have believed that the alleged domestic dragnet was legal."
He also knocked down AT&T's assertion that the EFF hadn't put forth enough facts to make a case that the company had done real injuries to its customers.
On the contrary, "as long as the named plaintiffs were, as they allege, AT&T customers during the relevant time period, the alleged dragnet would have imparted a concrete injury on each of them," Walker wrote, pointing to the EFF's production of a sworn statement from as potentially providing "at least some factual basis" for its claims.
As for the state secrets privilege sought by the government, Walker cited a medley of historic cases before concluding that "the very subject matter of this action is hardly a secret." Besides, no prior case in which the state's secret privilege has been granted "involved ongoing, widespread violations of individual constitutional rights, as plaintiffs allege here," he argued.
Outlined by the Supreme Court in a 1953 case, that privilege permits the government to suppress a lawsuit that might otherwise lead to the disclosure of military secrets.
In this case, "the government has disclosed the general contours of the 'terrorist surveillance program,' which requires the assistance of a telecommunications provider, and AT&T claims that it lawfully and dutifully assists the government in classified matters when asked," Walker wrote.
The judge said he intended to appoint an independent expert to advise the court, as the case proceeds, on whether disclosing certain evidence would harm national security. He asked for the parties to offer suggestions as to whom to select.
"The compromise between liberty and security remains a difficult one," Walker wrote. "But dismissing this case at the outset would sacrifice liberty for no apparent enhancement of security."
CNET News.com's Declan McCullagh contributed to this report.