U.S. District Judge Ricardo Urbina said Justice Department prosecutors improperly built their case on sworn statements that had been given under a promise of immunity. Urbina said the government's explanations were "contradictory, unbelievable and lacking in credibility."
The decision throws out a case steeped in international politics. The September 2007 shooting in busy Nisoor Square left 17 Iraqis dead and inflamed anti-American sentiment abroad. The Iraqi government wanted the guards to face trial in Iraq and officials there said they would closely watch how the U.S. judicial system handled the case.
"We're obviously disappointed by the decision," Justice Department spokesman Dean Boyd said. "We're still in the process of reviewing the opinion and considering our options."
Prosecutors can appeal the 90-page ruling.
Blackwater contractors had been hired to guard U.S. diplomats in Iraq. The shooting led to the unraveling of the North Carolina-based company, which since has changed its management and changed its name to Xe Services.
The five guards are Donald Ball, a former Marine from West Valley City, Utah; Dustin Heard, a former Marine from Knoxville, Tenn.; Evan Liberty, a former Marine from Rochester, N.H.; Nick Slatten, a former Army sergeant from Sparta, Tenn., and Paul Slough, an Army veteran from Keller, Texas.
Defense attorneys said the guards were thrilled by the ruling after more than two years of scrutiny.
"It's tremendously gratifying to see the court allow us to celebrate the new year the way it has," said attorney Bill Coffield, who represents Liberty. "It really invigorates your belief in our court system."
"It's indescribable," said Ball's attorney, Steven McCool. "It feels like the weight of the world has been lifted off his shoulders. Here's a guy that's a decorated war hero who we maintain should never have been charged in the first place."
Urbina's ruling does not say whether the shooting was proper, only that the government improperly used evidence to build the case. After the shooting, the State Department ordered the guards to explain what happened.
Investigators promised the men that their statements were to be used only for the internal inquiry and would not be used in a criminal case. Such limited immunity deals are common in police departments so officers involved in shootings cannot hold up internal investigations by refusing to cooperate.
The deal meant that prosecutors had to build their case without using those statements. Urbina said the Justice Department failed to do so. Prosecutors read those statements, reviewed them in the investigation and used them to get search warrants, Urbina said.
The five guards had been charged with manslaughter and weapons charges. The charges carried mandatory 30-year prison terms.
It was unclear what the ruling means for a sixth Blackwater guard, Jeremy Ridgeway, who turned on his former colleagues and pleaded guilty to killing one Iraqi and wounding another.