The Federal Court of Appeal has sided with First Nations child-rights advocates who claim that Ottawa is short-changing native communities by under-funding child-welfare services.
The First Nations Child and Family Caring Society and the Assembly of First Nations launched a human-rights challenge that dates back to 2007.
But Ottawa has argued that the case should not be heard at all because it's not fair to compare federal programs with provincial programs.
Federal officials also say they have been putting more money into First Nations child welfare and reorienting their programs to focus on keeping families together.
After much wrangling and millions of dollars in legal fees, the Federal Court rejected the government's arguments, ordering a full hearing at the Canadian Human Rights Tribunal.
The government appealed the Federal Court's decision. On Monday, the Federal Court of Appeal upheld the Federal Court's decision.
Ottawa still has the option of asking the Supreme Court of Canada to hear its appeal.
Meanwhile, the Canadian Human Rights Tribunal began its hearings late last month.
Billions of dollars are at stake. If First Nations complainants win the case, Ottawa would likely be required to fund social services on reserves at the same level per capita as the provinces fund similar services off reserves.