Thanks to a ruling from the U.S. Court of Appeals for the Fifth Circuit, Hurricane Katrina victims are closer to recovering billions from the federal government. The lawyer leading the charge for the plaintiffs, meanwhile, got a morale boost on the eve of his sentencing on criminal charges relating to illegal campaign contributions.

In a unanimous opinion issued on Friday, the three-judge Fifth Circuit panel affirmed a 2009 ruling that flooding in New Orleans’ Ninth Ward was a manmade disaster caused by the U.S. Army Corps of Engineers’s negligence in maintaining the Mississippi River-Gulf Outlet, or MR-GO, the shipping channel connecting New Orleans with the Gulf of Mexico. The panel ruled that the 1928 Flood Control Act shields the Army Corps from liability for negligence relating to certain types of flood control projects, but “Mr. Go,” as the locals call it, falls outside the scope of that immunity.

The ruling is a big win for embattled Los Angeles trial lawyer Pierce O’Donnell, who argued for the plaintiffs before the Fifth Circuit last November even as a criminal sentence loomed over his head. In August, he pled guilty to two misdemeanor counts of making illegal campaign contributions to Sen. John Edwards’ 2004 presidential campaign. Last week he and federal prosecutors in Los Angeles agreed to a sentence of two months in prison and 500 hours community service. Los Angeles federal district court judge James Oteri was expected to rule on that agreement at a sentencing hearing on Monday.

The appeals court ruling grows out of a 2009 trial in which New Orleans federal district court judge Stanwood Duval awarded a total of $720,000 in damages to five plaintiffs. But there’s much, much more at stake. The Army Corps has on its hands a half-a-million administrative claims from flood victims. Plaintiffs lawyers hope to leverage the decision into a comprehensive settlement, plaintiffs liaison counsel Joseph Bruno of Bruno & Bruno told the Litigation Daily.

“The Corps put all of its eggs in one basket, thinking they had a get out jail free card in immunity, [but] that’s an extremely simplistic view of the Supreme Court’s complicated precedent,” Bruno told us. “I think the Fifth Circuit’s decision is a giant leap toward resolution by settlement.”

O’Donnell, whom we named Litigator of the Week when he won the 2009 ruling, was not immediately available for comment. In a statement on Friday’s decision, he called on the government to start negotiating a deal. “We are eager to sit down and forge a global settlement for all Katrina victims,” he said.

Bruno told us that the plaintiffs lawyers have spent $10 million on the case since 2005, logged countless hours, and even flown to Amsterdam to meet with dam experts. “We’re back in the hunt,” Bruno said. “But I’m not as naive as to believe it’s all over. The DOJ told me from the very beginning ‘we ain’t paying nothing’ until the Supreme Court takes the case or denies cert. They took a very hard tone.”

Unless the government softens that tone, next up for the Army Corps is a September 2012 trial on behalf of a group of Ninth Ward plaintiffs.