Credit-rating agencies have long turned to the First Amendment to fend off suits over their role in promoting securities that turn out to be not so credit worthy. The agencies’ free speech arguments have been a reliable protection against suits in the past, but that defense didn’t completely hold up in a decision issued on Wednesday.

The case involves a $5.86 billion structured investment vehicle called Cheyne Finance (now known as SIV Portfolio), which collapsed in August 2007 when the true value of the assets behind Cheyne’s notes became clear. Two institutional plaintiffs, King County, Wash., and Abu Dhabi Commercial Bank, alleged that Standard & Poor’s Ratings Services and Moody’s Investors Service gave false and misleading ratings to notes issued by Cheyne, which were disseminated to potential investors.

Manhattan federal district court Judge Shira Scheindlin conceded that it is “well established that the First Amendment protects credit-rating agencies” in many cases. But she ruled (pdf) that the protection does not apply when a “rating agency has disseminated their ratings to a select group of investors rather than to the public at large,” which the plaintiffs alleged in the Cheyne case.

Coughlin Stoia Geller Rudman & Robbins partner Patrick Daniels told us on Thursday that the ruling will be a big help to plaintiffs going forward. He said that there have been tens of billions of dollars lost in the $400 billion SIV market. Daniels has been traveling the world meeting with potential plaintiffs who now have a reason to go forward with a suit. And one plaintiff that already has filed a suit, the California Public Employees’ Retirement System, now has a roadmap to get around the First Amendment defense, according to Daniels.

“This is what we needed,” said Daniels.

We left a message with Cahill Gordon & Reindel’s Floyd Abrams, who represents Moody’s and S&P, but didn’t hear back. A spokesperson for S&P told Dow Jones, “We are pleased that the court has dismissed all but one of the 11 claims, and we are confident that we will prevail on the remaining claim.”

The plaintiffs also sued Morgan Stanley, the placement agent for the SIV notes, and Bank of New York Mellon, which served as an administrator for the SIV. Judge Scheindlin dismissed all the claims against Bank of New York Mellon, but she kept alive certain claims against Morgan Stanley.

Bank of New York is represented by Boies, Schiller & Flexner partners Jonathan Sherman and Damien Marshall. “We’re ecstatic,” said Sherman on Thursday, who added that the case appeared to be filed against his client for strategic and tactical purposes rather than for any wrongdoing.

A spokesperson for Morgan Stanley, which is represented by James Rouhandeh of Davis Polk & Wardwell, declined to comment.

This article first appeared on The Am Law Litigation Daily blog on AmericanLawyer.com.