Native American casino battle shifts to NY state court NEW YORK (Reuters) - A federal appeals court on Monday tossed out a ruling that had barred a Long Island-based Native American tribe from building a casino in Southampton, New York. In a 2-1 ruling, the 2nd U.S. Circuit Court of Appeals in New York said that the dispute pitting the Shinnecock Indian Nation against the state of New York and the town of Southampton belonged in state, not federal court. The ruling dissolved a Brooklyn federal court judge's permanent injunction in 2008 freezing the casino project and sent the case to New York state court. The Shinnecock Indian Nation became a federally recognized tribe in 2010. In 2003 it began construction of a 61,000-square-foot (5,667-square-meter) casino on a plot of land in Southampton known as Westwoods. New York first sued in Suffolk County Supreme Court to halt the project, alleging the proposed casino violated state and local laws and claiming that the plot was not recognized "Indian lands." The Shinnecock had the case moved to federal court. Following a bench trial in 2008, a Brooklyn federal judge found the tribe was not entitled to immunity and that its title to the Westwoods land had been forfeited hundreds of years ago. In Monday's ruling, judges John Walker and Barrington Parker of the 2nd Circuit said the matter should have remained in state court. "From the town's perspective it's disappointing and I would imagine that sentiment would be shared by all parties who expended lots of effort to litigate this," said Michael Cohen of Nixon Peabody, who represented Southampton. Cohen said the lawsuit would likely end up back in Suffolk County Supreme Court. Reporting by Basil Katz; Editing by Noeleen Walder and Xavier Briand