INQUIRER STAFF WRITER

An ambitious lawsuit by the Philadelphia firm of Cozen O'Connor blaming the government of Saudi Arabia for the Sept. 11, 2001, attacks was dealt a sharp setback yesterday when a federal appeals court ruled that the desert kingdom could not be sued for acts of terrorism.

The ruling followed years of hard-fought litigation in which lawyers for Cozen and other firms representing Sept. 11 victims traveled the globe tracking down witnesses with information about how Saudi money found its way to al Qaeda.

Yet, in a stinging setback for Cozen and other plaintiffs' lawyers, the U.S. Court of Appeals for the Second Circuit said U.S. law bars such lawsuits unless the State Department has found that a government provided material support for terrorist groups.

The State Department has made no such finding regarding Saudi Arabia.

The law does not "delegate to the victims, their counsel or the courts the responsibility of the executive branch to make America's foreign-policy response to acts of terrorism," said the opinion, written by Dennis Jacobs, chief judge of the Second Circuit, based in Manhattan.

The court made no finding on facts included in the lawsuits that the law firms have contended tie the Saudi government to funding for al Qaeda.

The ruling came in an appeal of a lower-court opinion filed by Cozen O'Connor on behalf of insurers that paid out billions in claims to businesses at ground zero. Cozen was joined in the legal action by law firms representing hundreds of individual victims and survivors and various other commercial interests that suffered losses.

Cozen and other law firms have spent millions in the high-profile action and have been working on the case almost from the day the attacks were carried out.

They alleged that the Saudi government funded Islamic charities that in turn became money-laundering conduits for al Qaeda and other terrorist organizations in advance of the Sept. 11 attacks.

Absent that funding, the lawsuits said, al Qaeda never would have emerged as a global threat.

The Saudi Arabian Embassy and members of its legal team declined to comment on the ruling yesterday, citing the possibility of further legal action.

In legal papers, lawyers for the kingdom argued that there was no credible evidence that senior Saudi officials had any knowledge of terrorism activities by the charities nor that they intended for the charities to finance al Qaeda.

But lawyers for victims of the Sept. 11 attacks reacted sharply to the decision.

"I have great respect for this panel, but I could not disagree more with their analysis or reasoning," said a clearly frustrated Stephen Cozen, who had argued the case in January before the Second Circuit. "It just seems to be totally wrong to us to have a decision be made on who gets immunity and who does or does not get immunity, based not on law but because of political decisions made by the diplomatic corps."

Cozen said he was recommending to his insurance-industry clients that they appeal the decision to the Supreme Court. But such appeals typically are uphill battles; the Supreme Court traditionally has accorded great deference to circuit court decisions.

The plaintiffs have 90 days to file an appeal. They also have the option of asking for a rehearing of the case by the Second Circuit.

"We believe that the court was wrong in its interpretation of the law," said Jerry S. Goldman, a lawyer for Anderson, Kill & Olick P.C. Goldman is representing the estate of John O'Neill Sr., a former Atlantic City resident and top antiterrorism official with the FBI who was serving as head of security at the World Trade Center and died in the attacks.

"Under the court's rationale, were a New Yorker to be sideswiped by a car driven by an employee of the Saudi Embassy, they could sue for bumps and bruises. Yet nearly 3,000 families of those innocents who were brutally killed in Lower Manhattan cannot pursue their claims."

The Second Circuit ruling upheld two lower-court decisions in 2005 by late federal District Judge Richard Conway Casey, saying that the government of Saudi Arabia, senior Saudi royals - Princes Naif, Sultan, Salman, Turki and Mohamed - could not be sued because they were protected by the Foreign Sovereign Immunities Act.

Casey also ruled that the Saudi High Commission for Relief of Bosnia and Herzegovina, established by the Saudi government in 1993 to provide aid to Muslim refugees caught up in the Balkans war and accused by the plaintiffs of being a money-laundering conduit for al Qaeda, also was immune.

In finding that the royals and the government were immune from suit, the Second Circuit pointed to a 1996 amendment to the sovereign-immunities act, written by Sen. Frank Lautenberg (D., N.J.), permitting U.S. citizens to file suit against foreign governments for terrorists acts that occur overseas.

Called the Flatow Amendment, after a 20-year-old New Jersey woman named Alisa Flatow who was killed in a suicide bombing in 1995 in Gaza, the law restricted terrorism lawsuits to governments that had been designated as state sponsors of terrorism.

White House and State Department officials, fearing that a flood of lawsuits from U.S. citizens might interfere with the conduct of U.S. foreign policy, had insisted on that restriction in return for their support.

Yet lawyers for the plaintiffs insisted yesterday that the designation requirement was intended only to establish one avenue for suing foreign governments. They said the Second Circuit, by failing to acknowledge other legal options provided by the act, had turned back the clock to an era when executive branch officials alone made the decision on whether U.S. citizens could sue foreign governments.

"This puts us back into the 1950s," Cozen said.

In their lawsuits, Cozen and other law firms allege that over a period of a decade or more, officials of the government of Saudi Arabia had financed Islamic charities that in turn had become the sources of funding for Islamic terrorists, first in Afghanistan and the Sudan and then later in the Bosnia-Herzegovina, and ultimately in the Sept. 11 attacks.

Read an Inquirer series on the lawsuit, plus yesterday's ruling and other court documents, at http://go.philly.com/cozen

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Contact staff writer Chris Mondics at 215-854-5957 or cmondics@phillynews.com.