Citing "broken promises" and calling the government’s conduct not an "isolated mistake," a federal appeals court in Washington has threatened to sanction the U.S. Department of Veterans Affairs in a dispute over a rule change that limited veterans’ rights.

A three-judge panel of the U.S. Court of Appeals for the Federal Circuit said on March 21 that the court "is prepared to consider sanctions for misconduct by the government and its responsible officials" for continuing to follow an invalid rule that took away certain procedural and appellate rights.

"It seems that sanctions may be needed to motivate V.A. in the future to treat its commitments and representations to this court and opposing counsel with the seriousness to which they are entitled," Judge S. Jay Plager wrote, joined by judges Jimmie Reyna and Kathleen O’Malley.

The appeals court, however, said it wanted to first hear from the V.A. about how the agency intends to "identify and rectify the harms caused by V.A.’s failure to abide by its representations." Monetary or non-monetary sanctions, then, are not a certainty. The U.S. Justice Department, which represented the V.A. in the Federal Circuit had no immediate comment.

At the heart of the case is an August 2011 immediate-effect rule change that restricted rights held by veterans in the pursuit of benefits. The V.A. has since repealed the rule.

The V.A. had long applied certain rights at hearings conducted at regional offices and in appellate proceedings in front of the Board of Veterans’ Appeals. The 2011 rule limited those protections "only to hearings conducted before the V.A. office having original jurisdiction over the claim." Veterans, the appeals court explained, would no longer have previously available procedural due process and appellate rights during board appeals.

The National Organization of Veterans’ Advocates Inc., represented by Latham & Watkins, in September 2011 filed a challenge in the appeals court over the rule change. The veterans’ group said the V.A. adopted the rule without first giving the public the chance to comment. As the case progressed, it became clear, the appeals court said, that the rule was invalid.

But that didn’t stop the agency from applying the rule, to the detriment of veterans, the Federal Circuit said. "The V.A.’s conduct in this matter troubles the court on multiple levels," Plager wrote in last week’s order to show cause. The "conduct did not involve an isolated mistake," the judge said.

The V.A., for instance, told the appeals court that, to the best of its knowledge, the invalid rule had not been applied to any cases after March 2012. But the Federal Circuit panel said the challengers presented evidence that the agency relied on the rule in a "substantial number" of cases after that date.

"The unwarranted denial of benefits means real-world consequences to veterans," Plager wrote. "Promises of hypothetical relief do not pay for food or provide needed medical care."

Latham appellate litigation associate Roman Martinez argued for the veterans before the Federal Circuit. Martinez called the order an "important win for veterans."

"We are glad that the court emphasized the V.A.’s duty to remedy the case," Martinez said. "We look forward to hearing from the V.A. on how they plan to satisfy the court’s order. We believe that they should take all steps necessary to fix the harm that their unlawful actions have caused."

National Law Journal reporter Matthew Huisman contributed to this report. Contact Mike Scarcella at mscarcella@alm.com.