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A federal appeals court Tuesday struck down a 3-year-old jury verdict in favor of a former Illinois State Police lieutenant who alleged his superiors punished him after he concluded authorities framed two innocent men in a politically sensitive double-murder probe.

The appellate decision turned heavily on a 2006 U.S. Supreme Court decision, Garcetti vs. Ceballos, which stripped away a layer of 1st Amendment rights from public employees when they act in their official capacities.

Retired Lt. Michale Callahan said he was upset by the opinion. “It’s just an example of the government protecting misconduct — the government protecting the government,” he said.

Callahan said the appeals court failed to note that he went to the FBI with his allegations, an act he contends was outside the scope of his official duties and therefore should be protected by the 1st Amendment.

“The decision doesn’t change the facts of the case,” he added. “I stood up and did the right thing.”

In an unrelated ruling last summer, the 7th Circuit had appeared to agree with Callahan, who reinvestigated the July 1986 murders of Karen and Dyke Rhoads in Paris, a central Illinois town.

Two men, Gordon “Randy” Steidl and Herb Whitlock, were convicted in the Rhoads murders. But in a July decision regarding Steidl’s civil suit for wrongful prosecution, the 7th Circuit agreed that evidence was suppressed in an effort to convict Steidl. The court concluded that “some of the available evidence would have shredded the state’s case.”

Steidl and Whitlock have been freed, due in part to Callahan’s allegations that they were wrongly convicted.

Callahan began reinvestigating the case in 2000, which led him to suspect that another man who was initially a person of interest in the murders — and who was then under federal investigation for alleged drug trafficking and money laundering — was the killer. He also learned the man was a contributor to the campaigns of several powerful state Republican officials.

When Callahan brought his suspicions to Cmdr. Diane Carper, she allegedly told him to stop investigating the Rhoads case because it was “too politically sensitive.” He later repeated these allegations to the agency’s internal investigations division, and charged that Carper and his immediate supervisor, Steven Fermon, were thwarting his attempts to investigate the Rhoads case.

In 2003, he was ordered to give a presentation regarding the case to officials from Gov. Rod Blagojevich’s office. He was subsequently transferred from investigations to the patrol division, and later that year he sued, claiming Fermon, Carper and another supervisor had him transferred as payback for his complaints about them.

In April 2005, a jury found in Callahan’s favor and awarded him nearly $700,000 in damages, though the judge later reduced damages to $260,000.

Carper recently retired, and Fermon is still employed as a state police captain.

A state police spokesman said the agency was pleased with the decision.

“We hope that it is the final chapter in what has been a long process for the agency and the people directly involved,” Lt. Scott Compton said. “The department can now continue working on what’s important, and that’s the Rhoads homicide investigation.”

The decision indicated that the Appellate Court felt a reversal was the only option available, said Mark Rotert, a defense attorney and former federal prosecutor.

“The issue of whether the Supreme Court is right or not is not the province of the 7th Circuit,” he said. “The 7th Circuit is designed to faithfully apply what the Supreme Court says about the 1st Amendment, and it looks to me like that’s exactly what they did here.”

John Baker, Callahan’s attorney, said, “They decided the things that Michale did are not entitled to constitutional protection, but that doesn’t take away from the fact that this jury concluded there were significant wrongs committed by Carper and Fermon.”

In Garcetti vs. Ceballos, the Supreme Court ruled Richard Ceballos — a deputy district attorney in Los Angeles County who claimed he was demoted for complaining to superiors that police were cooking up false evidence to obtain search warrants — was not protected by the 1st Amendment because his allegations were made in the course of official business.

As for options Callahan may have left, Rotert said the prospects looked grim.

“What he’s saying here is, ‘I was transferred because they were mad about what I said.’ In terms of a lawsuit based on his transfer within the department, it looks to me like he’s out of luck.”

But Callahan said he plans to appeal. “I’m hoping that the Supreme Court’s intentions are not to silence police from speaking out on corruption, crime and misconduct,” he said. “If that’s their intent, none of us are safe from police misconduct.”

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mwalberg@tribune.com

hdardick@tribune.com