Wednesday's decision is a defeat for Gov. Walker and several conservative groups, although a state court ruling still blocks the secret investigation.
The federal appeals court overturned federal Judge Rudolph Randa's decision to halt the John Doe probe. He ruled that the investigation into possible illegal collaboration between Walker's 2012 recall campaign and conservative funders, violated the free speech rights of those third party interests.
In its ruling Wednesday, the appeals judges said the legal battle belongs in state court, not in the federal system.
The group, Wisconsin Club for Growth and its director Eric O'Keefe took the matter to federal court, demanding it halt the John Doe. They also wanted the courts to hold prosecutors personally liable for investigating the activities of only conservative groups.
Earlier, Randa had also ordered prosecutors to destroy all the evidence they had collected during the two-year probe, but the federal appeals court quickly overturned that ruling.
The state judge overseeing the John Doe canceled subpoenas prosecutors said they needed to gather more information in their investigation. He said he did not see evidence that the campaign and funders violated state elections law, regarding the coordination of activities.
