A federal appeals court has sided with the Federal Emergency Management Agency in a dispute over FEMA’s decision to end housing subsidies for many victims of Hurricane Katrina.

In June 2007, U.S. District Judge Helen Berrigan ruled FEMA shouldn’t halt rental assistance payments to storm victims before they can appeal the agency’s decisions.

On Friday, however, the 5th U.S. Circuit Court of Appeals overruled Berrigan and concluded applicants for rental assistance aren’t legally entitled to a “continuing stream of payments.”

“There is simply no indication that the regulations constrain FEMA’s discretion to the point that it is bound to provide assistance to all eligible individuals,” Judge Carolyn King wrote on behalf of a three-judge panel of the 5th Circuit.

The appeals court said Berrigan abused her discretion in granting a preliminary injunction that required FEMA to continue paying rental assistance to eligible applicants until the agency hears their appeals.

The 5th Circuit blocked the preliminary injunction in July, then vacated the court order on Friday. The appeals court also sent the case back to Berrigan last week for further proceedings.

Four hurricane victims are named as plaintiffs in the suit. Berrigan, chief judge of the federal court in New Orleans, certified the case as a class-action for others whose applications for continued rental assistance were denied by FEMA.

Adam Strochak, a lawyer for the plaintiffs, said around 29,000 residents who were getting rental assistance from FEMA have been shifted into a new program run by the U.S. Department of Housing and Urban Development.

“A large portion of our class is getting the assistance they need and deserve,” he said of HUD’s program.

Strochak couldn’t say how many storm victims are still seeking FEMA rental assistance.

“It makes the class smaller. It doesn’t end the problem (with FEMA),” he added.

Strochak said the plaintiffs are weighing their legal options following Friday’s ruling. Recent changes in the federal government’s disaster housing programs also could change the case’s outlook, he added.

“I’m certainly not suggesting that we’re abandoning the case,” Strochak said.

The plaintiffs describe FEMA as “an overly bureaucratic and frustratingly unresponsive agency that misapplies its own rules and standards” and “uses incomprehensible codes to inform applicants of its decisions on their requests for assistance,” King wrote.

FEMA had argued the preliminary injunction’s requirements would overwhelm the agency and prevent it from responding promptly to other disasters.

Berrigan said she was “bewildered” by that response. FEMA’s reluctance to improve its appeal process for rental assistance applicants is “simply unacceptable,” the judge added.

“The FEMA appellate process, if it can be navigated at all, takes months,” she wrote in June. “In the meantime, the defendants appear to treat the plaintiffs and their prospects of homelessness … as if it were gnats to be brushed away while the defendants busy themselves with creating more bureaucratic regulations.”

The 5th Circuit also urged FEMA to improve procedures for communicating with applicants and explaining its decisions, but didn’t rule on the merits of the plaintiffs’ case.

“On the whole, it is not an exaggeration to say that the materials submitted by the parties, together with the pleadings, paint two very different pictures of FEMA’s administration of the rental assistance program,” King wrote in her 22-page ruling.